10.3 Islamic Investments by segments
Cost / 2018 Cost / 2017
Amortized Amortized
Note Provision for Surplus / Carrying Provision for Surplus / Carrying
cost diminution (Deficit) Value cost diminution (Deficit) Value
Rupees in ‘000 34,256,301
5,548,986
Federal Government Securities
GOP Ijarah Sukuks 26,511,713 - 1,893 26,513,606 33,840,536 - 415,765 63
(1,479) 272,794
Non Government Debt Securities 144,889
Sukuk cetificates - unlisted 10,082,407 (35,880) 44 10,045,048 5,552,652 (3,080) (586) 40,223,033
Mutual fund units (2,901)
Units of open-end mutual
funds 21 - - 65 21 - 42
(2,443)
Shares
Ordinary shares of listed
companies 372,865 - 369,964 274,801 - (2,007)
Subsidiary
BankIslami Modaraba
Investments Limited 10.9 191,015 (86,126) 104,889 191,015 (46,126) -
37,158,021 (122,006) 37,033,572 39,859,025 (49,206) 413,214
10.4 Conventional Investments by segments*
2018
Cost / Cost / 2017
Note Amortized Provision for Surplus / Carrying Amortized Carrying
diminution (Deficit) Value Provision for Surplus / Value
cost cost diminution (Deficit)
-
Rupees in ‘000 -
-
Non Government Debt Securities 140,715
Listed Companies 92,764 (92,764) - - 104,807 (104,807) - 577,675
Unlisted Companies 499,423 (499,423) - - 499,423 (499,423) - 718,390
592,187 (592,187) - - 604,230 (604,230) - -
Shares (1,877) - -
Listed Companies 145,478 (73,498) - 70,103 967,706 (826,991) - -
Unlisted Companies 1,189,030 (611,355) (1,877) 577,675 1,189,030 (611,355) - 627,942
1,334,508 (684,853) - 647,778 2,156,736 (1,438,346) - 627,942
Associates - Unlisted - - 522,801
KASB Capital Limited 10.10 41,867 (41,867) - - 41,867 (41,867) - -
KASB Funds Limited 10.10 432,302 (432,302) - - 432,302 (432,302) - 522,801
New Horizon Exploration & - - 1,869,133
Production Limited 10.10 558,000 (558,000) - - 558,000 (558,000) -
Shakarganj Food Products - -
Limited 10.10 627,942 - - 627,942 627,942 - -
1,660,111 (1,032,169) (1,877) 627,942 1,660,111 (1,032,169) -
Subsidiaries
BIPL Securities Limited 10.9 2,394,937 (1,872,136) 522,801 2,394,937 (1,872,136)
My Solutions Corporation Limited 10.9 104,771 (104,771) - 104,771 (104,771)
2,499,708 (1,976,907)
6,086,514 (4,286,116) 522,801 2,499,708 (1,976,907)
1,798,521 6,920,785 (5,051,652)
10.5 Investments given as collateral
2018 2017
Rupees in ‘000
GOP Ijarah Sukuks 5,000,000 10,000,000
* These assets are related to amalgamated entity. These investments are under process of conversion /
liquidation / disposal.
102
10.6 Provision for diminution in value of investments
Note 2018 2017
Rupees in ‘000
10.6.1 Opening balance 5,100,858 4,890,258
Charge / (reversal) 73,426 210,885
Charge for the year (12,043) (285)
Reversals for the year 61,383
Reversal of provision / provision for diminution (754,119) 210,600
in value of investments - net 31 4,408,122 -
Amounts written off
Closing balance 10.6.1.1 5,100,858
10.6.1.1 Break up of provision for diminution in the value of
investments is as follows:
Investments - Islamic 122,006 49,206
Investments - Conventional 4,286,116 5,051,652
4,408,122 5,100,858
10.6.2 Particulars of provision against debt securities
2018 2017
Category of classification Non- Provision Non- Provision
performing performing
investments investments
Domestic Rupees in ‘000
Other assets especially mentioned - - - -
Substandard - - - -
Doubtful - - - -
Loss 904,318 628,067 916,360 607,311
Total 904,318 628,067 916,360 607,311
10.6.2.1 The Bank does not hold overseas classified debt securities.
10.6.2.2 Sukuks amounting to Rs. 312.131 million have been placed under non performing status. The
Forced Sale Value (FSV) benefit of the collateral availed in respect of Sukuks amounts to Rs.
Nil (2017:Rs. 32.8 million). Profit accrued on these Sukuks has been suspended. The additional
profit arising from availing the FSV benefit - net of tax amounting to Rs. Nil (2017: Rs. 21.32
million) is not available for distribution in either cash or stock dividend to shareholders.
10.7 Quality of Available for Sale Securities
Details regarding quality of Available for Sale (AFS) securities are as follows:
10.7.1 Federal Government Securities - Government guaranteed
2018 2017
Cost
Rupees in ‘000
GOP Ijarah Sukuks 26,511,713 33,840,536
103
10.7.2 Non-Government Debt Securities* 2018 2017
Cost
Unlisted
Rupees in ‘000
AAA
A 9,002,459 4,597,484
A+ 542,000 220,000
AA- 50,000 322,000
Unrated 100,000 -
658,534 695,797
10.7.3 Mutual Funds
10,352,993 5,835,281
A(f)
AA(f) 5 5
Unrated 5 5
11 11
21 21
10.7.4 Shares (Equity Securities)
143,771 242,645
10.7.4.1 Listed Companies 64,871 -
91,675
- Real Estate Investment Trust 53,783 91,675
- Banks 876,011
- Modarabas 20
- Chemical 354,120 20
- Power Generation and Distribution 1,210,351
10.7.4.2 Unlisted Companies 2018 2017
Pakistan Export Finance Guarantee Cost Breakup value Cost Breakup value
Agency Limited
KASB Invest (Private) Limited Rupees in ‘000
10.7.5 Foreign Securities 5,680 0.50 5,680 0.50
28,000 3.06 28,000 3.06
33,680 3.56 33,680 3.56
Equity Securities
2018 2017
Unlisted
Cost
Evolvence Capital Limited - Incorporated
Rupees in ‘000
in British Virgin Islands
1,155,350 1,155,350
* Entity`s ratings are used where sukuk and term finance certificates ratings were not available
104
10.8 Particulars relating to Held to Maturity securities are as follows:
Non-Government Debt Securities
2018 2017
Cost
Unlisted Rupees in ‘000
- Unrated 321,601 321,601
10.8.1 The market value of securities classified as held-to-maturity as at December 31, 2018
amounted to Nil (December 31, 2017: Nil).
10.9 Details of investment
in subsidiaries
2018
Holding Country of Assets Liabilities Revenue Profit / Total
% incorporation Rupees in ‘000 (loss) after comprehen-
taxation sive income /
(loss)
Listed 77.12 Pakistan 1,829,580 951,685 196,158 (22,452) (47,090)
BIPL Securities Limited
100.00 Pakistan 88,382 1,974 6,589 (8,352) (3,818)
Unlisted 100.00 Pakistan 14,448 29,678 1,978 (6,237) (6,237)
BankIslami Modaraba
Investments Limited
My Solutions Corporation
Limited
10.10 Details of investment
in associates
Unlisted 43.89 Pakistan 46,465 32,465 23,640 (66,241) (65,679)
KASB Funds Limited
New Horizon Exploration and
Production Limited 20.00 Pakistan 452,899 117,949 73,048 37,870 37,870
Shakarganj Food Products
Limited 36.38 Pakistan 7,641,489 4,923,645 3,000,323 366,346 373,199
KASB Capital Limited* 21.78 Mauritius $652,864 $135,428 - $(34,084) $(34,084)
* This represents the full US$ amount.
11 ISLAMIC FINANCING, RELATED ASSETS AND ADVANCES - NET
Note 2018 2017
Rupees in ‘000
Islamic financing and related assets - net 11.1 118,087,795 118,469,536
Advances (relating to amalgamated 483,016 685,503
entity) - net 11.2
118,570,811 119,155,039
105
11.1 ISLAMIC FINANCING AND RELATED ASSETS
Note Performing Non Performing Total
2018 2017 2018 2017 2018 2017
In Pakistan Rupees in ‘000
- Murabahah inancing
and related assets 11.3 & 11.9 9,448,791 13,568,133 446,781 328,424 9,895,572 13,896,557
- Istisna financing and 11.4 & 14,023,932 10,459,365
related assets 11.10 12,452,638 10,408,644 1,047,479 826,468 15,071,411 11,285,833
- Diminishing Musharakah
Housing 933,779 699,098 13,386,417 11,107,742
- Diminishing Musharakah
financing and related
assets - Auto 8,394,715 5,197,891 52,478 33,584 8,447,193 5,231,475
- Diminishing Musharakah
financing and related
assets - Others 11.6 19,962,598 9,977,899 633,515 811,649 20,596,113 10,789,548
- Against Bills - Murabahah 169,671 79,732 - - 169,671 79,732
- Post Due Acceptance 94,806 37,241 - 108,728 37,241
- Salam 11.5 143,935 123,987 13,922 144,272 166,987
- Muswammah financing 337 43,000
and related assets / 11.7 877,072 599,380 15,232,254 14,546,579
Karobar financing 14,355,182 13,947,199 95,489 35,071 2,603,451 2,270,601
- Financing to employees 11.18 2,507,962 2,235,530 394,094 359,075
- Qardh e Hasana 2,345,509 2,345,509 599,194 561,956
- Running Musharakah 205,100 202,881 24,404,458 38,689,311
- Investment Agency Wakalah 22,058,949 36,343,802 - - 6,250,000 6,250,000
- Housing finance 6,250,000 6,250,000
portfolio - others 37,819 45,788 - - 37,819 45,788
- Net investment in Ijarah
financing in Pakistan 11.12 36,543 38,481 - - 36,543 38,481
- Ijarah financing under
IFAS 2 and related assets 11.8 3,714,311 5,413,304 167,097 216,360 3,881,408 5,629,664
Gross financing and related
assets 113,856,952 114,329,877 7,007,552 6,297,618 120,864,504 120,627,495
Less: Provision against 11.14 & 11.15 - - (2,546,436) (1,934,769) (2,546,436) (1,934,769)
non-performing Islamic 11.14 & 11.15 (230,273) (223,190) - - (230,273) (223,190)
financing and
related assets
- Specific
- General
(230,273) (223,190) (2,546,436) (1,934,769) (2,776,709) (2,157,959)
Islamic financing and related 113,626,679 114,106,687 4,461,116 4,362,849 118,087,795 118,469,536
assets – net of provisions
11.2 ADVANCES
Loans, cash credits, running
finances, etc. - In Pakistan* 194,852 469,732 7,218,699 8,239,390 7,413,551 8,709,122
Net investment in finance 585,391 585,243 585,391
lease - In Pakistan 11.12 255 - 584,988
Bills discounted and 714,646 714,646 714,646
purchased (excluding treasury bills) 9,539,427 8,713,440 10,009,159
- Payable in Pakistan 122,451 - 592,195 (9,515,300) (8,386,515) (9,515,300)
Advances - gross 317,558 469,732 8,395,882
Provision against advances - (369) (688)
- Specific 11.14 & 11.15 - - (8,386,515) (9,515,300) (8,386,884) (9,515,988)
- General 11.14 & 11.15 (369) (688) -
(369) (688) (8,386,515) 24,127 326,556 493,171
Advances - net of provision 317,189 469,044 9,367 192,332 156,460 192,332
Fair Value adjustment 11.16 - - 156,460 216,459 483,016 685,503
Advances - net of provision
and fair value adjustment 317,189 469,044 165,827
* T his includes non-interest bearing financing facilities amounting to Rs. 88.944 million.
106
11.3 Murabahah financing and related assets Note 2018 2017
Rupees in ‘000
Murabahah financing 11.3.1 7,928,163 11,064,353
Deferred Murabahah income 337,220 378,563
Advances against Murabahah financing 1,630,189
9,895,572 2,453,641
13,896,557
11.3.1 Murabahah receivable - gross 11.3.2 8,265,383 11,442,916
Less: Deferred Murabahah income 11.3.4 (123,982)
Profit receivable (213,238) (146,828)
Murabahah financing 7,928,163 (231,735)
11,064,353
11.3.2 The movement in Murabahah financing during the year is as follows:
10,816,499
Opening balance 11,442,916 66,360,039
Sales during the year 27,387,581 (65,733,622)
Received during the year (30,565,114) 11,442,916
Closing balance 8,265,383
11.3.3 Murabahah sale price (for transactions 27,387,581 66,360,039
during the year) (26,682,001) (65,104,250)
Murabahah purchase price (for transactions 705,580 1,255,789
during the year)
146,828 134,490
705,580 1,255,789
(728,426) (1,243,451)
11.3.4 Deferred Murabahah income 123,982
146,828
Opening balance
Arising during the year 10,180,982 5,949,944
Recognised during the year 4,624,429 5,269,236
Closing balance
266,000 66,653
11.4 Istisna financing and related assets 15,071,411 11,285,833
Istisna financing 52,305 67,001
Advance against Istisna financing 91,967 99,986
Istisna inventories 144,272 166,987
11.5 Salam
Salam financing
Advance against Salam
11.6 Diminishing Musharakah financing and related assets - Others
Diminishing Musharakah financing 20,542,427 10,584,893
Advance against Diminishing Musharakah financing 53,686 204,655
20,596,113
10,789,548
107
11.7 Muswammah financing and related assets / Karobar financing 2018 2017
Note
Rupees in ‘000
Muswammah financing 13,496,828 9,622,350
Advance against Muswammah financing - -
Muswammah inventories
1,735,426 4,924,229
15,232,254 14,546,579
11.8 Ijarah financing under IFAS 2 and related assets
Net book value of assets under IFAS 2 11.13 3,880,726 5,427,911
Advance against Ijarah financing 682 201,753
3,881,408 5,629,664
11.9 Murabahah financing and related assets includes financing amounting to Rs. 600 million
(2017: Rs. 827.897 million) and advance amounting to Rs. 500 million (2017: Rs. 797.250
million) under Islamic Export Refinance Scheme.
11.10 Istisna financing and related assets includes financing amounting to Rs. 901.300 million
(2017: Rs. 444.654 million) and advance amounting to Rs. 530.375 million (2017: Rs. 1,094.541
million) under Islamic Export Refinance Scheme.
11.11 Particulars of Islamic financing and related assets and advances - gross
2018 2017
Rupees in ‘000
11.11.1 In local currency 129,577,944 130,636,654
In foreign currency - -
129,577,944 130,636,654
11.12 Break up of net investment in Ijarah financing and finance lease
36,543 38,481
Islamic financing and related assets - net 585,243 585,391
Advances - net 621,786 623,872
Total
11.12.1 Net investment in Ijarah financing in Pakistan and finance lease
2018 2017
Not later Later than Over five Total Not later Later than Over five
than one one and less years than one one and less years
year then five years year then five years
Rupees in ‘000
Ijarah rentals receivable 575,290 - - 575,290 576,718 - - 576,718
Residual value 90,794 - - 90,794 91,452 - - 91,452
Minimum Ijarah payments 666,084 - - 666,084 668,170 - - 668,170
Profit for future periods (44,298) - - (44,298) (44,298) - - (44,298)
Present value of minimum
Ijarah payments 621,786 - - 621,786 623,872 - - 623,872
108
11.13 Ijarah Assets 2018
Cost Accumulated depreciation Book value Rate of
Addition / as at Deprecia-
As at (deletions) As at As at Charge / As at December 31,
January 01, December 31, January 01, (deletions) December 31, tion %
2018
2018 2018 2018 2018
Rupees in ‘000
Plant and Machinery 1,856,078 4,049 1,860,127 1,007,861 140,548 1,148,409 711,718 20-33.33
Vehicles 7,290,401 257,259 6,219,976 2,710,707 1,020,174 3,050,968 3,169,008 20-33.33
(1,327,684) (679,913)
9,146,479 261,308 8,080,103 3,718,568 1,160,722 4,199,377 3,880,726
(1,327,684) (679,913)
2017
Cost Accumulated depreciation Book value Rate of
Addition / as at Deprecia-
As at (deletions) As at As at Charge / As at December 31,
January 01, December 31, January 01, (deletions) December 31, tion %
2017
2017 2017 2017 2017
Rupees in ‘000
Plant and Machinery 1,817,106 51,729 1,856,078 823,532 195,810 1,007,861 848,217 20-33.33
(12,757) (11,481) 2,710,707 4,579,694 20-33.33
3,718,568 5,427,911
915,258 7,290,401 1,932,980 1,187,889
(946,533) (410,162)
Vehicles 7,321,676 966,987 9,146,479 2,756,512 1,383,699
(959,290) (421,643)
9,138,782
11.13.1 Future Ijarah payments receivable 2017
2018
Total Not later Later than Over five Total
Not later Later than Over five than one one and less years
year then five years
than one one and less years
year then five years Rupees in ‘000
Ijarah rentals receivable 1,237,529 1,378,157 - 2,615,686 1,805,798 2,640,112 - 4,445,910
109
11.14 Islamic financing, related assets and advances include Rs. 15,403.434 million (2017: Rs.
15,837.045 million) which have been placed under non-performing status as detailed below:
Category of Classified Islamic financing and related 2018 Provision Held
Classification assets and advances
Provision Required
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
Rupees in ‘000
Other Assets Especially 267,237 - 267,237 220 - 220 220 - 220
Mentioned (OAEM) 734,484 - 734,484 87,997 - 87,997 87,997 - 87,997
Substandard 523,501 - 523,501 112,035 - 112,035 112,035 - 112,035
Doubtful 13,878,212 - 13,878,212 10,732,699 - 10,732,699 10,732,699 - 10,732,699
Loss 15,403,434 - 15,403,434 10,932,951 - 10,932,951 10,932,951 - 10,932,951
Category of Classified Islamic financing and related 2017 Provision Held
Classification assets and advances
Provision Required
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
Rupees in ‘000
Other Assets Especially 95,345 - 95,345 - - - - - -
Mentioned (OAEM) 3,056,420 - - 108,551
Substandard - 3,056,420 108,551 - 108,551 108,551 - 375,817
Doubtful 939,044 - - 10,965,701
Loss 11,746,236 - 939,044 375,817 - 375,817 375,817 - 11,450,069
15,837,045
11,746,236 10,965,701 - 10,965,701 10,965,701
15,837,045 11,450,069 - 11,450,069 11,450,069
11.14.1 In case of one of the non-performing Islamic financing and related assets amounting to Rs. 2,562 million
(2017: Rs. 2,562 million), SBP has granted relaxation vide letter no. BPRD/BRD/PRs/7388/2018 dated
April 4, 2018 on creating a provision till December 31, 2018. The outstanding amount of relaxation e.g.
provisioning will not be available for distribution of cash & stock dividend and performance bonus to
employees. Had the provision been made as per the requirements of applicable Prudential Regulations,
the ‘provision against Islamic financing and related assets and advances’ would have been higher by
Rs. 490.864 million (2017: Rs. 474.822 million) and profit before taxation would have been lower by Rs.
490.864 million (2017: Rs. 474.822 million).
11.15 Particulars of provision against non-performing Islamic financing, related assets and advances:
Note Specific 2018 Total Specific 2017 Total
11,450,069
General General
824,518
(903,028) Rupees in ‘000
(78,510)
Opening balance (438,608) 223,878 11,673,947 11,939,357 192,927 12,132,284
Charge for the year 10,932,951 6,764 831,282 519,502 30,951 550,453
Reversals - (997,966)
6,764 (903,028) (478,464) - (997,966)
Amount written off 11.17 - (71,746) (10,824) 30,951 (447,513)
Closing balance (438,608) (10,824)
230,642 11,163,593 11,450,069 - 11,673,947
223,878
110
11.15.1 Specific 2018 Total Specific 2017 Total
2,546,436 2,157,959
Islamic 8,386,515 General Rupees in ‘000 General 9,515,988
Conventional 10,932,951 11,673,947
230,273 2,776,709 1,934,769 223,190
369 8,386,884 9,515,300 688
11,163,593 11,450,069
230,642 223,878
11.15.2 Provision / reversal of provision net of fair value adjustment taken to the profit and loss
account
2018 2017
Rupees in ‘000
Gross reversals 903,028 997,966
Charge for the year (831,282) (550,453)
71,746 447,513
Fair value adjusted - net (35,871) 30,175
Net reversals taken to the profit and loss account 35,875 477,688
11.15.3 Particulars of provision against non-performing Islamic financing and related assets and
advances:
2018 2017
Specific General Total Specific General Total
Rupees in ‘000
In local currency 10,932,951 230,642 11,163,593 11,450,069 223,878 11,673,947
In foreign currency - - - - - -
10,932,951 230,642 11,163,593 11,450,069 223,878 11,673,947
11.15.3.1 The Bank maintains general reserve (provision) in accordance with the applicable
requirements of the Prudential Regulations for Consumer Financing and Prudential
Regulations for Small and Medium Enterprise Financing issued by the SBP.
11.15.3.2 In accordance with BSD Circular No. 2 dated January 27, 2009 issued by the SBP, the Bank
has availed the benefit of Forced Sale Value (FSV) of collaterals against the non-performing
financings. The benefit availed as at December 31, 2018 amounts to Rs. 493.169 million
(2017: Rs. 432.630 million). The additional profit arising from availing the FSV benefit - net
of tax amounts to Rs. 320.560 million (2017: Rs. 281.209 million). The increase in profit, due
to availing of the benefit, is not available for distribution of cash and stock dividend to
share holders.
11.16 Provision in respect of acquired loans related to amalgamated entity have been determined
after taking into considerations of the fair values of such loans on the basis of valuation
exercise performed by the Independent consultant.
Particulars of write offs 2018 2017
1 1.17
Rupees in ‘000
Against provisions 438,608 10,824
Directly charged to the profit and loss account - -
438,608 10,824
Write offs Rs. 500,000 and above 438,608 10,339
Write offs below Rs. 500,000 - 485
438,608 10,824
111
11.17.1 Details of Financings Write-off of Rs. 500,000 and above
In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962 the
Statement in respect of written-off financings or any other financial relief of rupees five hundred
thousand or above allowed to a person(s) during the year ended is given in Annexure-I.
11.18 Particulars of financing to directors, executives or officers of the Bank
Financing due by directors, executives or officers of the Bank or any of them either severally
or jointly with any other persons.
Note 2018 2017
Rupees in ‘000
Balance at the beginning of the year 2,270,601 2,061,846
Financing granted during the year 1,014,232 1,020,826
Repayments made during the year (681,382) (812,071)
Balance at the end of the year 11.18.1 2,603,451 2,270,601
11.18.1 This includes Rs. 5.413 million (2017: Rs. 5.609 million) profit free financing to employees
given under the Bank’s Human Resource Policy.
Note 2018 2017
12 FIXED ASSETS Rupees in ‘000
Capital work-in-progress 12.1 87,761 54,437
Property and equipment 12.2 6,575,706 5,889,921
6,663,467 5,944,358
12.1 Capital work-in-progress
Advances to suppliers and contractors 87,761 54,437
Advance for acquiring properties: 721,903 721,903
- Office premises 809,664 776,340
(721,903) (721,903)
Provision for impairment against advance for
acquiring floor / office premises 87,761 54,437
112
12.2 Property and Equipment 2018
Freehold / Furniture Electrical, office
Leasehold Freehold / and fixture and computer Vehicles Total
Leasehold
land Building equipment
Rupees in ‘000
At January 1, 2018
Cost / revalued amount 1,003,803 2,921,861 2,743,869 2,531,763 17,337 9,218,633
(12,159) (3,328,712)
Accumulated depreciation - (197,062) (1,262,761) (1,856,730)
5,178 5,889,921
Net book value 1,003,803 2,724,799 1,481,108 675,033
Year ended December 2018 5,178 5,889,921
Opening net book value 1,003,803 2,724,799 1,481,108 675,033
Additions
Additions - - 112,858 264,510 40,785 418,153
- -
Other adjustments / transfers* 356,592 (356,592) - -
40,785 418,153
356,592 (356,592) 112,858 264,510
Disposals
Disposals - - (2,853) (50,212) (1,250) (54,315)
Movement in surplus on assets
revalued during the year
Movement in surplus on assets
revalued during the year 178,814 461,110 - - - 639,924
Depreciation charge
(4,843) (649,852)
Depreciation charge - (81,572) (267,932) (295,505)
Reversal of depreciation - 278,634
on revaluation - 278,634 - - 1,250 53,241
Reversal of depreciation (3,593) (317,977)
on disposal - - 2,804 49,187 41,120 6,575,706
- 197,062 (265,128) (246,318)
56,872 10,222,395
(15,752) (3,646,689)
Closing net book value 1,539,209 3,026,379 1,325,985 643,013 41,120 6,575,706
20
At December 31, 2018
Cost / revalued amount 1,539,209 3,026,379 2,853,874 2,746,061
Accumulated depreciation - - (1,527,889) (2,103,048)
Net book value 1,539,209 3,026,379 1,325,985 643,013
Rate of depreciation
(percentage) - 2 10 15-25
* T his represents rectification/reclassification of land previously classified as building on freehold land.
113
Freehold / Freehold / 2017 Vehicles Total
Leasehold Leasehold
At January 1, 2017 Building Furniture Electrical, office
Cost / revalued amount land and fixture and computer
Accumulated depreciation
Net book value equipment
Year ended December 2017 Rupees in ‘000
Opening net book value
1,016,199 2,904,636 2,904,209 2,930,016 38,151 9,793,211
Additions - (80,980) (1,328,191) (2,206,343) (29,800) (3,645,314)
Additions
Other adjustments / transfers 1,016,199 2,823,656 1,576,018 723,673 8,351 6,147,897
Disposals 1,016,199 2,823,656 1,576,018 723,673 8,351 6,147,897
Disposals
Other adjustments / transfers - - 182,496 281,352 - 463,848
(12,396) 17,225 (339,022) (647,082) (20,298) (1,001,573)
Depreciation charge (12,396) 17,225 (156,526) (365,730) (20,298) (537,725)
Depreciation charge
Reversal of depreciation ln - - (3,814) (32,523) (516) (36,853)
- - - - 20,298 20,298
disposal - - (3,814) (32,523) 19,782 (16,555)
Other adjustments / transfers
- (102,968) (278,857) (323,236) (3,173) (708,234)
Closing net book value - - 2,045 30,330 516 32,891
- (13,114) 342,242 642,519 - 971,647
At December 31, 2017 - (116,082) 65,430 349,613 296,304
Cost / revalued amount (2,657)
Accumulated depreciation
Net book value 1,003,803 2,724,799 1,481,108 675,033 5,178 5,889,921
Rate of depreciation 1,003,803 2,921,861 2,743,869 2,531,763 17,337 9,218,633
- (197,062) (1,262,761) (1,856,730) (12,159) (3,328,712)
(percentage)
1,003,803 2,724,799 1,481,108 675,033 5,178 5,889,921
- 2 10 15-25 20
114
12.2.1 Details of property and equipment disposed-off
Details of disposal of fixed assets to the Chief Executive Officer or to a Director or to Executives,
irrespective of the value, and to any other person having cost more than Rs. 1 million or net book
value of Rs. 250,000 or above during the year are disclosed in ‘Annexure II’.
12.3 Cost of fully depreciated properties and equipment that are still in the Bank’s use, as at December 31,
2018, amounted to Rs. 1,939.726 million (2017: Rs. 1,490.711 million).
12.4 During the year 2018, the Bank’s freehold land and buildings on leasehold land were revalued by
M/s. Harvester Services (Pvt.) Ltd., Gandhara Consultants (Pvt.) Ltd. and Akbani & Javed Associates
on the basis of their professional assessment of the present market value. As a result of revaluation
the market value of freehold land and buildings on leasehold land were determined at Rs. 4,565.588
million.
Had there been no revaluation, the carrying amount of revalued assets at December 31, 2018 would
have been as follows:
COST DEPRECIATION
As at Addition (Disposals) As at As at Charge for As at Net book
January 01, December 31, January 01, the year December 31, value as at
2018 2018 2018 December 31,
2018 2018
Rupees in ‘000
Freehold / Leasehold Land 434,928 - - 434,928 - - - 434,928
Building on leasehold land 2,524,622 - - 2,524,622 288,216 51,341 339,557 2,185,065
2,959,550 - - 2,959,550 288,216 51,341 339,557 2,619,993
2018
13 INTANGIBLE ASSETS
Computer Core Customer Goodwill
software deposits list (Note 13.2) Total
At January 1, 2018 Rupees in ‘000
Cost
Accumulated amortization and impairment 459,788 40,600 7,799 2,944,297 3,452,484
Net book value (310,292) (6,318) (7,745) - (324,355)
149,496 34,282 3,128,129
Year ended December 2018 54 2,944,297
Opening net book value 149,496
Additions: 62,145 34,282 54 2,944,297 3,128,129
- directly purchased (65,920) -
Amortisation charge - - 62,145
Other adjustments - (2,394) - - (68,314)
Closing net book value 145,721 - (54) -
- 2,944,297 (54)
At December 31, 2018 521,933 31,888 3,121,906
Cost (376,212)
Accumulated amortisation and impairment 40,600 7,799 2,944,297 3,514,629
(8,712) (7,799) - (392,723)
Net book value 145,721 31,888 - 2,944,297 3,121,906
Rate of amortisation (percentage) 20 5.5-20 10 -
5 5 - 18 10 -
Useful life
115
2017
Computer Core Customer Goodwill Total
software deposits list (Note 13.2)
Rupees in ‘000
At January 1, 2017 666,466 40,600 30,735 2,944,297 3,682,098
Cost (488,938) (3,925)
Accumulated amortisation 177,528 36,675 (27,969) - (520,832)
2,766 2,944,297 3,161,266
and impairment 177,528
Net book value 27,399 36,675 2,766 2,944,297 3,161,266
(58,076) -
Year ended December 2017 2,645 - - 27,399
Opening net book value 149,496 (2,393) (2,712) - (63,181)
Additions: - -
- directly purchased 459,788 - 2,944,297 2,645
Amortisation charge (310,292) 34,282 54 3,128,129
Other adjustments 149,496
Closing net book value 40,600 7,799 2,944,297 3,452,484
(6,318)
At December 31, 2017 34,282 (7,745) - (324,355)
Cost 54 2,944,297 3,128,129
Accumulated amortisation
and impairment
Net book value
Rate of amortisation (percentage) 20 5.5-20 10 -
Useful life 5 5 - 18 10 -
13.1 The cost of fully amortised intangible assets that are still in the Bank’s use, as at December 31, 2018
amounted to Rs. 196.261 million (2017: Rs. 181.765 million).
13.2 This represents goodwill recognised upon acquisition of KASB Bank Undertakings based on fair
values of assets and liabilities. The SBP vide its letter no. BPRD(R&P-02)/625-112/2017/4089
dated February 24, 2017 had allowed the Bank exemption from “Goodwill impairment” under the
applicable accounting standards till December 30, 2018 and thereafter the Bank is required to start
goodwill impairment testing as per applicable accounting rules. Accordingly, the Bank carried out
goodwill impairment testing as at December 31, 2018.
As described in note 6.17 to the financial statements, the Bank historically assessed its performance
as a single business unit. Accordingly, Goodwill has been tested for impairment by considering the
Bank as a single operating unit as currently the management does not monitor its results at a segment
level.
Key assumptions used in value in use calculation
The recoverable amount of Goodwill has been determined based on value in use calculation,
using cash flow projections based on financial strategy approved by the Board of Directors of the
Bank covering a five year period. The discount rates applied to cash flows beyond five years are
extrapolated using a terminal growth rate. The following rates are used by the Bank.
116
%
Discount rate 21.55
Terminal growth rate 7.04
The calculation of value in use is most sensitive to following assumptions:
a) Profit margins
Profit margins are based on prevailing industry trends and anticipated market
conditions.
b) Discount rates
Discount rates reflect management estimates of the rate of return required for each
business and are calculated after taking into account the prevailing risk free rate,
industry risk and business risk. Discount rates are calculated by using cost of equity of
the Bank.
c) Key business assumptions
The assumptions are important as they represent management assessment of how
the Bank’s financial position might change over the projected period. Based on the
expansion plans, management expects aggressive growth in financing, investments and
deposits during the projected periods and thereafter stabilisation in line with industry
trends.
Management believes that any significant change in key assumptions, on which
Goodwill’s recoverable amount is based, may impact the carrying amount to further
exceed its recoverable amount. Value in use calculation of Goodwill are sensitive to
changes in assumptions for profit rate spreads, Non Funded Income (NFI), long term
growth rates and discount rates.
d) Sensitivity to changes in assumption
The estimated recoverable amount of Goodwill exceeds its carrying amount
by approximately Rs. 3,204.209 million. Management has identified two key
assumptions for which there could be a reasonably possible change that could cause
the carrying amount to exceed the recoverable amount. The following table shows
the amount that these two assumptions are required to change individually in
order for the estimated recoverable amount to be equal to the carrying amount.
Changes required for carrying amount to equal recoverable amount
%
Discount rate 6.45
Terminal growth rate (13.56)
13.3 The amount of goodwill that will be deductible for taxable purposes is Rs. 5,896.832 million. The
difference represents the fair value benefit of the financial assistance granted by the State Bank of
Pakistan.
117
14 DEFERRED TAX ASSETS
2018
Note At Jan 1 Recognised in Recgonised in At Dec 31
2018 P&L & OCI 2018
Unappropriated
profit
Deductible Temporary Rupees in ‘000
Differences on: 3,548,284 82,450
Accumulated tax losses 14.1 - 3,630,734
Tax credit against minimum tax - 168,353 - 168,353
Provision for diminution in the value - 326,246
of investments 580,183 (253,937)
Provision against non-performing
Islamic financing and related
assets and advances 4,034,741 - - 4,034,741
Provision for gratuity 21,253 - - 21,253
Impairment of goodwill 37,001 (37,001) - -
Ijarah financing and related assets 71,708 - 179,937
Others 108,229 (6,691) - 268,589
275,280 24,882 - 8,629,853
Taxable Temporary Differences on: 8,604,971
Fair value adjustments relating to
net assets acquired upon amal
gamation (163,641) (109,355) - (272,996)
Accelerated tax depreciation (120,636) 43,216 - (77,419)
Surplus on revaluation of fixed assets 22 (386,711) - (253,312)
Surplus on revaluation of (640,023)
non-banking assets 22 (5,149) 19,706 (36,769) (22,213)
Surplus on revaluation of available
for sale securities 22 (145,325) - 139,947 (5,378)
Net investment in finance lease (81,603) - - (81,603)
(903,065) (46,433) (150,134) (1,099,632)
(21,551) (150,134) 7,530,221
7,701,906
2017
Note At Jan 1 Recognised in Recgonised in At Dec 31
2017 P&L & OCI 2017
Unappropriated
profit
Deductible Temporary Differences on: Rupees in ‘000
Accumulated tax losses 1,869,423 1,678,861 - 3,548,284
Tax credit against minimum tax 354,905 (354,905) - -
Provision for diminution in the 507,551 - 580,183
value of investments 72,632
Provision against non-performing 3,834,711 - 4,034,741
Islamic financing and related assets 21,253 200,030 - 21,253
and advances 74,118 - - 37,001
Provision for gratuity 1,018 - 108,229
Impairment of goodwill 348,071 (37,117) - 275,280
Ijarah financing and related assets 107,211 - 8,604,971
Others 7,011,050 (72,791)
1,593,921
Taxable Temporary Differences on: (38,157)
Fair value adjustments relating to (193,708)
net assets acquired upon (392,310)
amalgamation (125,484) - (163,641)
Accelerated tax depreciation (4,632) 73,072 - (120,636)
Surplus on revaluation of fixed assets 22 (382,180) - 5,599 (386,711)
Surplus on revaluation of (81,603) - (517)
non-banking assets 22 (1,092,590) - 236,855 (5,149)
Surplus on revaluation of available 5,918,460 - - (145,325)
for sale securities 22 (52,412) 241,937 (81,603)
Net investment in finance lease 241,937 (903,065)
1,541,509 7,701,906
118
14.1 The Bank has aggregate tax losses of Rs. 10,373.525 million as at December 31, 2018 which includes tax
losses of defunct KASB Bank Limited (now amalgamated with and into the Bank). The management
has carried out an assessment for estimating the benefit of these losses. The Bank would be able to
set off the profit earned in future years against these carry forward losses. Based on this assessment
the management has recognised deferred tax debit balance amounting to Rs. 3,630.734 million. The
amount of this benefit has been determined based on the projected financial statements for the future
periods as approved by the Board of Directors. The determination of future taxable profit is most
sensitive to certain key assumptions such as cost to income ratio of the Bank, deposit’s composition,
kibor rates, growth of deposits and financing, investment returns, product mix of financing, potential
provision against assets / financings, recoveries from non-performing loans and branch expansion
plan. Any significant change in the key assumptions may have an effect on the realisibility of the
deferred tax asset.
15 OTHER ASSETS - NET Note 2018 Restated
2017
Rupees in ‘000
Profit / return accrued in local currency 2,549,844 2,441,242
Profit / return accrued in foreign currency 3,804 4,972
Advances, deposits, advance rent and other
prepayments 754,090 384,965
Non-banking assets acquired in
satisfaction of claims 15.1 2,462,019 1,586,419
Branch Adjustment Account 85,453 -
Insurance claim receivable 24,280 28,704
Receivable against First WAPDA Sukuk 15.2 50,000 50,000
Acceptances 944,025 1,627,253
Unrealized gain on forward foreign
exchange contracts 25,489 -
Unrealized gain on future sale contracts 21,006 2,359
Amount held with financial institution 23.3.3 738,477 -
Other receivables 361,851 174,010
8,020,338 6,299,924
Less: Provision held against other assets 15.3 (678,959) (668,897)
Other Assets (Net of Provision) 7,341,379 5,631,027
Surplus on revaluation of non-banking
assets acquired in satisfaction of claims 384,502 181,999
Total other assets 7,725,881 5,813,026
15.1 Market value of Non-banking assets acquired
in satisfaction of claims 15.1.1 2,317,671 1,239,568
The properties of the Bank have been revalued by independent professional valuers as at 31
December 2018. The revaluation was carried out by M/s. Harvester Services (Pvt.) Ltd., Gandhara
Consultants (Pvt.) Ltd., Akbani & Javed Associates, Sadruddin Associates, Fairwater Property
Valuers & Surveyors (Pvt.) Ltd., MYK Associates (Pvt.) Ltd. and Tristar International Consultant Pvt.
Ltd. on the basis of professional assessment of present market values which resulted in an increase in
surplus by Rs. 258.806 million.
Impairment amounting to Rs. 528.850 million (2017: Rs. 528.850 million) is included in provision held
against other assets.
119
15.1.1 Non-banking assets acquired in satisfaction of claims
2018 2017
Rupees in ‘000
Opening Balance 1,239,568 1,137,060
Additions 952,620 -
Disposals (70,367) -
Revaluation 202,503
Depreciation (6,653) 109,142
Closing Balance (6,634)
2,317,671
1,239,568
15.1.2 Loss on disposal of non-banking assets acquired in satisfaction of claims
116,100 -
Sale Proceeds (126,670) -
less: Carrying Value (10,570) -
Loss on disposal
15.2 The Bank had purchased 10,000 certificates on June 25, 2009 of first WAPDA Sukuk through
a negotiated transaction for a cash consideration of Rs. 50.228 million having face value of Rs. 50
million. These certificates were available in the seller’s Central Depository Company (CDC) account
and on completion of the transaction were transferred to the Bank’s CDC account. However, the
periodic Ijarah Rental dues were not paid to the Bank on the plea that there exists certain discrepancy
with respect to ownership of the asset. The amount has been shown under “other assets” as the
certificates were matured in 2012 as per the terms of the sukuk issue. The Bank has not recognised
any provision in respect of the above amount as it is fully secured through a lien over a deposit
account.
15.3 Provision held against other assets
Note 2018 2017
Rupees in ‘000
Advances, deposits, advance rent &
other prepayments 26,692 26,692
Non-banking assets acquired in
satisfaction of claims 528,850 528,850
Others 123,417 113,355
15.3.1 678,959 668,897
15.3.1 Movement in provision held against other assets
Opening balance 668,897 661,290
Charge for the year 11,327 7,607
Reversals (1,265) -
Closing balance 678,959 668,897
16 BILLS PAYABLE
In Pakistan 3,242,180 3,928,469
Outside Pakistan - -
3,242,180 3,928,469
120
17 DUE TO FINANCIAL INSTITUTIONS
Note 2018 2017
Rupees in ‘000
Secured
Acceptances from State Bank of Pakistan
under Islamic Export Refinance Scheme 17.1 2,496,675 3,103,902
Acceptances from State Bank of Pakistan
for financial assistance 17.2 2,822,857 2,581,488
5,319,532 5,685,390
Musharakah Acceptance 17.3 - 5,000,000
Total secured 5,319,532 10,685,390
Unsecured
Wakalah Acceptance 17.4 - 585,000
Musharakah Acceptance 17.5 2,500,000 4,300,000
Total unsecured 2,500,000 4,885,000
7,819,532 15,570,390
17.1 The acceptances are on a profit and loss sharing basis and are secured against demand
promissory notes executed in favour of the State Bank of Pakistan (SBP). A limit of Rs. 5,000
million (2017: Rs. 5,000 million) was allocated to the Bank by the SBP under Islamic Export
Refinance Scheme for the financial year ended December 31, 2018.
17.2 This represents amortized cost of a 10 year financing facility of Rs.5,000 million extended by
the State Bank of Pakistan (SBP). The facility is secured against Government of Pakistan Ijarah
Sukuk. The 10 year facility was provided on the basis of Mudarabah to be remunerated at
profit sharing ratio declared by the Bank on its remunerative current accounts on monthly
basis. Accordingly, the profit amortization rate applied by the Bank in this respect is 0.01% per
annum.
17.3 The profit rates on this agreement is Nil (2017: 5.83%) per annum and has matured during the
year.
17.4 The profit rate on this agreement is Nil (2017: 5.75%) per annum and the agreement has
matured during the year.
17.5 The profit rates on these agreements are varying between 9.10% to 9.60% (2017: 5.65% to
5.70%) per annum and has maturity in 3 to 25 days (2017: 2 to18 days).
17.6 Particulars of due to financial institutions with respect to currencies
2018 2017
Rupees in ‘000
In local currency 7,819,532 15,570,390
In foreign currencies - -
7,819,532 15,570,390
121
18 DEPOSITS AND OTHER ACCOUNTS
2018 2017
CInurLroencacly In Foreign Total CInurLroencacly In Foreign Total
currencies currencies
Rupees in ‘000
Customers
Current deposits 57,544,632 1,571,063 59,115,695 55,643,395 1,443,557 57,086,952
Savings deposits 57,397,384 2,932,484 60,329,868 54,757,724 2,097,995 56,855,719
Term deposits 54,272,975 617,886 54,890,861 42,233,594 170,911 42,404,505
Others 438,238 17,697 455,935 577,988 14,608 592,596
169,653,229 5,139,130 174,792,359 153,212,701 3,727,071 156,939,772
Financial Institutions
Current deposits 162,566 11,425 173,991 180,259 9,984 190,243
Savings deposits 7,482,013 - 7,482,013 20,607,802 - 20,607,802
Term deposits 2,245,000 - 2,245,000 572,000 - 572,000
9,889,579 11,425 9,901,004 21,360,061 9,984 21,370,045
179,542,808 5,150,555 184,693,363 174,572,762 3,737,055 178,309,817
18.1 Composition of deposits
2018 2017
Rupees in ‘000
Individuals 53,743,188 52,004,962
Government (Federal and Provincial) 7,786,734 6,736,395
Public Sector Entities 10,074,411 4,430,687
Banking Companies 4,350 107,964
Non-Banking Financial Institutions 9,902,753 21,262,081
Private Sector 103,181,927 93,767,728
184,693,363 178,309,817
18.2 This includes deposits eligible to be covered under takaful arrangements amounting to Rs.
110,586.391 million.
19 OTHER LIABILITIES Note 2018 Restated
2017
Rupees in ‘000
Profit / return payable in local currency 860,995 776,022
Profit / return payable in foreign currencies 9,837 4,676
Accrued expenses
Deferred Murabahah Income - Financing and IERS 500,693 384,350
Deferred Murabahah Income - Commodity Murabahah 173,447 153,187
Payable to defined benefit plan
Payable to defined contribution plan 17,561 94,091
Defined Benefit Plan liabilities 4,880 5,023
Security deposits against Ijarah 2,917 2,210
Provision against off-balance sheet obligations 19.1 78,446 45,993
Surplus income of quarantined entity held for 2,053,039 2,403,012
129,093 129,093
future admissible expenses - 95,860
Acceptances 944,025 1,627,253
Receipt appropriation account 74,056
Current taxation (provisions less payments) 214,429 159,543
Balance carried forward 5,063,418 225,574
6,105,887
122
OTHER LIABILITIES (contd.) Note 2018 Restated
2017
Rupees in ‘000
Balance brought forward 5,063,418 6,105,887
Provision against other tax liabilities 58,683 27,251
Sundry creditors 176,996 74,459
Payable to brokers against purchase of shares - net 33,444 31
Unrealized loss on forward foreign exchange contracts - 898
Charity payable 19.2 12,966 2,679
Retention money payable 10,857 17,474
Provision for Workers’ Welfare Fund 31,939 23,723
Branch adjustment account - 38,247
Others 85,063 16,604
5,473,366 6,307,253
19.1 Provision against off-balance sheet obligations
Opening balance 129,093 299,093
Transferred to provision against Investment - (170,000)
Closing balance 19.1.1 129,093 129,093
19.1.1 These are overdue non-funded facilities that could not be transferred to funded due to litigation.
19.2 Charity payable
Note 2018 2017
Rupees in ‘000
Opening balance 2,679 2,145
Additions during the year 51,213 8,864
- Received from customers on account 2,773
of delayed payment 239
- Shariah non-compliant income 101 81
- Profit on charity saving account 54,087 9,184
(1,700) (3,400)
Distribution of Charity (37,500) (2,300)
- Education (700)
- Health (500) (2,250)
- Islamic microfinance program (4,100) (8,650)
- Community development (43,800) 2,679
19.2.1 12,966
Closing balance 350
- 700
19.2.1 Charity was paid to the following: 500 950
2,600 200
Ahmed E. H. Jaffer Foundation 500
Akhuwat Foundation - 300
Alamgir Welfare Trust International 1,000
Bait us Salam Education Foundation -
Bait us Salam Welfare Trust 500 200
Centre for Development of Social Services 100 3,200
Child Aid Association
Diya Pakistan -
Balance carried forward 4,700
123
Charity was paid to the following: (contd.) 2018 2017
Rupees in ‘000
Balance brought forward 4,700 3,200
Ghousia Free Dispensary 500 200
Indus Hospital 35,500 700
Institute of Behavourial Psychology 500 -
Karachi Relief Trust - 150
Karewan-e-Hayat 300 -
Kharadar General Hospital 500 700
Koohi Goth Hospital 300 200
Markaz-e-Umeed - 200
Mrs. Shahnaz Khan - 150
National University of Sciences & Technology - 500
Nigahban Welfare Association 100 -
Pakistan Association of the Blind (Sindh) 100 -
Pakistan Navy Education Trust (PNET) - 200
Pakistan Navy Educational Trust - Bahria Model School - 250
Sahara Public Rights Welfare - 200
Shoukat Khanum Memorial 300 500
Tasha Trust - 500
The Citizen Foundation 1,000 1,000
43,800 8,650
19.2.2 Charity was not paid to any staff of the Bank or to any individual / organisation in which a
director or his spouse had any interest at any time during the year.
20 SHARE CAPITAL - NET
20.1 Authorised capital
2018 2017 2018 2017
Number of Shares Rupees in ‘000
1,300,000,000 1,300,000,000 Ordinary shares of 13,000,000 13,000,000
Rs.10 each
20.2 Issued, subscribed and paid up capital
2018 2017
Number o f Shares ORrds.in10areyacshh ares of 2018 2017
Rupees in ‘000
1,007,912,090 1,007,912,090 Fully paid in cash 10,079,121 10,079,121
- - Less: Discount on
issue of shares (79,042) (79,042)
1,007,912,090 1,007,912,090 10,000,079 10,000,079
21 RESERVES
Note 2018 2017
Rupees in ‘000
21.1
Statutory Reserves 718,799 676,266
Reserve for bad debts and contingencies 21.2 250,000 250,000
968,799 926,266
124
21.1 Under section 21 of the Banking Companies Ordinance, 1962 an amount of not less than 20% of
the profit is to be transferred to create a reserve fund till such time the reserve fund and the share
premium account equal the amount of the paid up capital. Thereafter, an amount of not less than 10%
of the profit is required to be transferred to such reserve fund.
21.2 The Board of Directors in its meeting held on March 6, 2015 had approved transfer of an amount of
Rs. 250 million out of “unappropriated profit” to “reserve for bad debts and contingencies”.
22 SURPLUS ON REVALUATION OF ASSETS - NET OF TAX
Note 2018 2017
Rupees in ‘000
Surplus on revaluation of: 15,366 415,221
Available for sale securities 10.1 2,119,539 1,216,977
Fixed Assets 22.1
Non-banking assets acquired in 383,356 181,327
satisfaction of claims 22.2 2,518,261 1,813,525
Deferred tax liability on surplus on
revaluation of:
Available for sale securities (5,378) (145,325)
Fixed Assets 22.1 (640,023) (386,711)
Non-banking assets acquired in (22,213)
satisfaction of claims 22.2 (667,614) (5,149)
1,850,647 (537,185)
1,276,340
22.1 Surplus on revaluation of fixed assets
Freehold / Leasehold Land
Surplus on revaluation of fixed assets at January 1 112,087 112,087
Surplus recognised during the year 178,814 -
290,901
Building on leasehold land 112,087
Surplus on revaluation of fixed assets at January 1 1,104,890 1,120,887
739,745 -
Surplus recognised during the year
Transferred to unappropriated profit in
respect of incremental depreciation
charged during the year (10,398) (10,398)
Related deferred tax liability in respect of (5,599) (5,599)
incremental depreciation charged during the year (15,997) (15,997)
1,828,638 1,104,890
(386,711) (392,310)
Related deferred tax liability on surplus (258,911)
as at January 1 5,599 -
Related deferred tax liability on surplus (640,023) 5,599
arising during the year 1,188,615 (386,711)
Related deferred tax liability in respect of 1,479,516 718,179
incremental depreciation charged during the year 830,266
125
22.2 Surplus on revaluation of non-banking assets acquired in satisfaction of claims
2018 2017
Freehold / Leasehold Land Rupees in ‘000
Surplus on revaluation of Non-Banking
Assets at January 1 166,619 59,367
Surplus recognised during the year 153,276 107,252
319,895 166,619
Building on leasehold land
Surplus on revaluation of Non Banking
Assets at January 1 14,708 13,233
105,530 1,890
Surplus recognised during the year (56,303)
-
Suplus transferred to unappropriated profit
Transferred to unappropriated profit in
respect of incremental depreciation charged
during the year (308) (270)
Related deferred tax liability in respect of (166) (145)
incremental depreciation charged during the year (474) (415)
63,461 14,708
(5,149) (4,632)
Related deferred tax liability on surplus (36,936) (662)
as at January 1 19,706
Related deferred tax liability on surplus 166 -
arising during the year (22,213) 145
Related deferred tax liability on surplus on 41,248 (5,149)
revaluation transferred to unappropriated profit 361,143 9,559
Related deferred tax liability in respect of 176,178
incremental depreciation charged during the year
23 CONTINGENCIES AND COMMITMENTS Note 2018 Restated
2017
Rupees in ‘000
- Guarantees 23.1 6,709,789 10,097,695
- Commitments 23.2 13,971,812 11,700,571
- Other contingent liabilities 23.3 2,453,168 1,243,036
23,134,769 23,041,302
23.1 Guarantees:
Financial guarantees 123,320 261,139
Performance guarantees 4,701,791 4,414,134
Other guarantees 1,884,678 5,422,422
6,709,789 10,097,695
126
23.2 Commitments: Note 2018 Restated
2017
Rupees in ‘000
Documentary credits and short-term
trade-related transactions
- letters of credit 3,706,280 5,808,063
Commitments in respect of:
- forward foreign exchange contracts 23.2.1 2,870,624 (306,336)
- future sale of shares 23.2.2 (165,634) (32,202)
- operating leases 23.2.3 4,913,424 4,324,670
Commitments for acquisition of:
- operating fixed assets 198,145 142,682
- intangible assets 114,207 10,286
2,334,766 1,753,408
Other commitments 23.2.4 13,971,812 11,700,571
23.2.1 Commitments in respect of forward foreign exchange contracts
Purchase 9,694,236 1,269,645
Sale (6,823,612) (1,575,981)
2,870,624 (306,336)
23.2.2 Shariah Compliant future sale of shares
Purchase 170 -
Sale (165,804) (32,202)
(165,634) (32,202)
23.2.3 Commitments in respect of operating leases
Not later than one year 160,769 19,356
Later than one year and not later than five years 1,524,244 115,319
Later than five years 3,228,411 4,189,995
4,913,424 4,324,670
23.2.4 Other commitments
Bills for collection 2,334,766 1,753,408
23.2.4.1 The Bank makes commitments to extend financing in the normal course of its business but
these being revocable commitments do not attract any significant penalty or expense if the
facility is unilaterally withdrawn.
Note 2018 2017
23.3 Other contingent liabilities Rupees in ‘000
Suit filed by customers for recovery
of alleged losses suffered, pending
in the High Court, which the Bank
has not acknowledged as debt 23.3.1 161,200 161,200
Tax Contingencies 23.3.4 2,291,968 1,081,836
2,453,168 1,243,036
127
23.3.1 These are court cases, which represent counter claims filed by the borrowers, for restricting the Bank
for disposal of the financed assets, (such as mortgaged / leased / pledged assets, kept as security), as
well as, the cases where the Bank is pleaded as proforma defendant for defending its interest.
23.3.2 Consequent to the amalgamation of defunct KASB Bank Limited with and into BankIslami Pakistan
Limited as at May 7, 2015 certain cases have been filed by individuals pertaining to amalgamation, at
Honorable Sindh High Court, Honorable Lahore High Court and Islamabad High Court, in which
the Bank has been made a party. The double bench of Honorable Sindh High Court has disposed-off
the prayers in three Constitutional Petitions, without any negative inference to the Bank, and issued
certain directions to SBP which were then complied with. Subsequently, an appeal was filed against
the decision of the Honorable Sindh High Court which has also been dismissed by the Honorable
Supreme Court. Thereafter, Civil Review Petitions were filed in Honorable Supreme Court against
dismissal order of the appeal, which have also been dismissed by the Honorable Supreme Court of
Pakistan. The cases at Honorable Lahore High Court are also disposed off in the light of Honorable
Supreme Court and Honorable Sindh High Court order. The cases at Honorable Islamabad High
Court are pending. The management based on the opinion of its legal counsel is confident that these
cases will also be dismissed by the Honorable Court.
23.3.2.1 There are two cases filed against the Bank by KASB Corporation Ltd. One case is filed at Honorable
Sindh High Court and the other is filed at Honorable Islamabad High Court. The Corporation claims
of having placed Rs. 981.410 million with Ex-KASB Bank, as Advance against Issue of Right Shares.
The amount was reported by the Ex-KASB Bank as part of the shareholders equity in the financial
statements with the permission of SBP. Subsequent to the merger, KASB Corporation Limited and
Mr. Nasir Ali Shah Bokhari filed a suit against the Bank in the Honorable High Court of Sindh; and
also filed Miscellaneous Applications, praying thereby to restrain the Bank from using or transferring
the amount of advance; and for directing the Bank to deposit the aforementioned amount with the
Nazir of the Court; and to invest the same in interest / mark-up bearing certificates. On April 18,
2018, these Miscellaneous Applications were dismissed by the Honorable High Court of Sindh,
however, the main Suit is still pending adjudication. In addition, the Corporation has filed a Writ
Petition at Honorable Islamabad High Court, which is yet pending hearing. The management based
on the opinion of its legal counsel is confident that the main Suit will be dismissed by the Honorable
Courts.
23.3.2.2 After the acquisition of defunct KASB Bank Limited, the Bank came to know about certain
transactions, identified by SBP including but not limited to fraudulent activities. SBP instructed the
Bank to initiate legal actions in this respect and accordingly separate complaints were lodged with
National Accountability Bureau (the Bureau) which were later converted into formal Inquiries by the
Bureau. It may be noted without prejudice to the Bank’s claim, the related amounts have not been
recorded in these financial statements, as a matter of prudence.
23.3.3 The Bank has filed suit No. 2038 of 2018 in Honorable High Court of Sindh against the international
payment scheme and others along with an application for interim order restraining international
payment scheme from deducting amounts aggregating to USD 6.1 million, relating to potential
financial impact that may arise from a cybercrime incident. Following this incident, the local
settlement bank deducted the above mentioned amount from the Bank’s respective clearing account.
The Honorable Court issued the stay order restraining the international payment scheme from
taking any steps to debit the aforementioned amount. The management strongly believes that it
substantially complied with actions required to be taken during the cybercrime incident involving
an ATM Cash out incident. The Bank on the advice of the international payment scheme has also
128
initiated an independent review of the incident by engaging PCI Forensic Investigator (PFI).
Accordingly, the management based on the advice of its legal counsel believes that it has a sound
arguable case insofar as it is not liable to settle the amount of the fraudulent transactions since the
Bank had immediately complied with all the security requirements.
23.3.4 Tax Contingencies
23.3.4.1 The income tax returns of the Bank have been filed upto tax year 2018 whereas the tax assessments
have been made by the tax authorities upto tax year 2017. The returns filed for the tax year 2014 to tax
year 2018 are treated to be deemed assessment order under section 120 of the Income Tax Ordinance,
2001.
23.3.4.2 During the year 2014 (relating to defunct KASB Bank Limited), the learned Additional Commissioner
Inland Revenue (ACIR) passed amended assessments order under section 122(5A) of the Income Tax
Ordinance, 2001 for tax years 2011 and 2013 by imposing minimum tax on turnover disregarding
gross loss position of the Bank. ACIR has also amended taxability of capital gain and dividend
income. The aggregate tax impact comes to Rs. 116.002 million. Against the said order, the Bank
filed an appeal before the Commissioner Inland Revenue - Appeals (CIRA). During the year 2016,
the learned CIRA issued order under section 129 of the Ordinance by deleting the tax charged on
capital gain and dividend income and upheld the levy of minimum tax. The learned ACIR has
passed appeal effect order under section 124 of the Ordinance. After appeal effect order the aforesaid
demand has now been reduced to Rs. 89.928 million. Against the order of the learned CIRA, the Bank
has filed an appeal before the Honorable Appellate Tribunal Inland Revenue (ATIR). However, the
department has filed an appeal against the CIRA Order on the issue of capital gain and dividend
income. Therefore, cross appeal for the tax year 2011 and 2013 is pending before ATIR.
23.3.4.3 During the year 2014 (relating to defunct KASB Bank Limited), appellate order passed by the CIRA
(in respect of Income tax assessments of International Housing Finance Limited, amalgamated
into the defunct KASB Bank Limited during the year ended 31 December 2007) for tax year 2005
maintained the order of the Taxation Officer to the extent of disallowances relating to income from
carry over transactions and gain on sale of property having an aggregate tax impact of Rs. 12.997
million. The defunct KASB Bank Limited has preferred appeals before the ATIR for tax year 2005
which are pending finalization.
23.3.4.4 During the year 2013 (relating to defunct KASB Bank Limited), theAppellate Tribunal Inland Revenue
(ATIR) passed an order for the tax years 2005 to 2009 in favour of the defunct KASB Bank Limited
by allowing certain deductions including provision for non-performing advances, impairment
on investments, other provisions, amortization of goodwill and allocation of expenses having an
aggregate tax impact of Rs. 712.550 million. However, the ATIR has disallowed deductions relating
to carry over transactions having tax impact of Rs. 86.377 million for the tax years 2005 to 2008. The
defunct KASB Bank Limited has preferred an appeal before the Honorable High Court of Sindh
against the said decision of the ATIR. No development has taken place during the current year.
23.3.4.5 During the year 2013 (relating to defunct KASB Bank Limited), the Income tax assessments of
KASB Capital Limited (amalgamated into the defunct KASB Bank Limited during the year ended
31 December 2008) for tax years 2008 and 2009 were amended by the T axation Officer to the extent
of apportionment of expenses having an aggregate tax impact of Rs. 125.880 million. The Bank
has preferred an appeal before the Honorable High Court of Sindh against the said decision of tax
authorities. No development has taken placed during the current year.
129
23.3.4.6 For tax years 2003 and 2004 (relating to defunct KASB Bank Limited), the CIRA has passed
appellate orders on account of certain disallowances in respect of income from carry over
transactions, provision against non performing advances, bad debts and certain other items
having an aggregate tax impact of Rs. 33.748 million. The defunct KASB Bank Limited has
preferred an appeal before the Appellate Tribunal Inland Revenue (ATIR) against the above
referred orders of the CIR Appeals. No development has taken place during the current
year.
23.3.4.7 For assessment years 2001-2002 and 2002-2003 and tax years 2003, 2004 and 2005 (relating to
defunct KASB Bank Limited) the income tax authorities of AJK region have passed appellate
orders by adding interest on surplus funds transferred to Head Office, resulting in an additional
tax demand of Rs. 14.587 million. The defunct KASB Bank Limited has filed reference with
the Honorable Azad Kashmir High Court against such additions for the above mentioned
assessment / tax years up to 2004. For the tax year 2005, the CIRA - AJK has passed order in
favour of the defunct KASB Bank Limited. However, the tax department has preferred appeal
before the ATIR - AJK against interest on surplus head office funds, having tax impact of Rs.
5.337 million. For tax years 2006 and 2008, AJK tax department passed orders under section
122(5A) of the Ordinance. As a result of these orders, aggregate demand of Rs. 19.178 million
was raised against the defunct KASB Bank Limited. However, the order for the tax year 2008
was subsequently rectified under section 221 of the Ordinance. Thereby aggregate demand for
tax years 2006 and 2008 reduced to Rs. 13.304 million. Subsequently, the learned CIRA - AJK
has passed orders under section 129 of the Ordinance for the tax years 2006 and 2008 whereby
he has confirmed all additions. Therefore, the defunct KASB Bank Limited has preferred an
appeal before the ATIR - AJK. An appeal against the order of CIRA for the tax years 2006
and 2008 has been filed by the Bank before the Appellate Tribunal Inland Revenue (ATIR) -
AJK.
23.3.4.8 In respect of tax year 2015, the ACIR under section 122(5A) of the Income Tax Ordinance,
2001 amended the return submitted by the Bank by adding/disallowing certain expenses /
deductions resulting in reduction of losses claimed by the Bank by Rs. 32.893 million and
levied super tax. As a result, a tax demand of Rs. 124.134 million was created.
The Bank filed an appeal against the said decision before CIRA as a result of which an appellate
order has been passed. In the appellate order, the CIRA confirmed the restriction of minimum
tax and other disallowances to the extent of Rs. 9.857 million. Against the treatment meted out
by the CIRA, an appeal has been filed before the ATIR.
23.3.4.9 In respect of the tax years 2016 and 2017, the ACIR under section 122(5A) of the Income Tax
Ordinance, 2001 amended the return submitted by the Bank by adding/disallowing certain
expenses/deductions resulting in reduction of losses claimed by the Bank by Rs. 3.358 billion
and Rs. 755.414 million for the tax years 2016 and 2017 respectively.
Against the disallowances in tax year 2016, an appeal has been filed before the CIRA which is
pending finalization.
For the tax year 2017, the Bank filed an appeal against the said decision before CIRA as a
result of which an appellate order has been passed. In the appellate order, the CIRA
remanded disallowance of Rs.39.50 million and whereas disallowances of Rs. 13.381 million
were upheld. Remaining disallowances made by the CIR amounts to Rs. 702.533 million
were deleted by the CIRA. Against the treatment meted out by the CIRA in favour of
the Bank, the tax authorities have filed an appeal before the ATIR which is pending.
130
The management, based on the opinion of its tax advisor, is confident about the favourable outcome
of the above matters and consequently no additional provision has been made in these financial
statements.
24 PROFIT / RETURN EARNED Note 2018 2017
Rupees in ‘000
Profit earned on:
Financing 8,378,121 6,696,448
Investments 2,685,833 2,408,000
Placements 1,039,981 1,169,567
Others
100,303 79,834
25 PROFIT / RETURN EXPENSED 12,204,238 10,353,849
Deposits and other accounts 5,359,084 4,668,903
Due to financial institutions 810,398 580,176
Cost of foreign currency swaps against 793 803
foreign currency deposits
6,170,275 5,249,882
26 FEE AND COMMISSION INCOME
Branch banking customer fees 92,812 65,956
Commission on bancatakaful 53,684 95,906
Card related fees 272,409 248,227
Financing related fees 1,572 3,293
Commission on arrangement with financial institutions 21,401 17,664
Consumer finance related fees 26,532 27,870
Commission on guarantees 54,737 31,665
Investment banking fees 150,047 20,154
Commission on cash management 8,495 5,654
Commission on remittances including 61,844 35,161
home remittances 92,478 91,326
Commission on trade 6,224 5,191
Others 842,235 648,067
27 GAIN ON SECURITIES
Realised gain 27.1 66,504 121,421
Unrealised loss - held for trading 10.1 (19,686) (2,007)
46,818
27.1 Realised gain on: 119,414
43,405
Federal Government Securities (5,581) 20,220
Shares 58,416 57,796
Mutual fund units 13,669 121,421
66,504
131
28 OTHER INCOME Note 2018 2017
Rupees in ‘000
Rent on property 11,126 10,953
Gain on termination of financing 59,402 35,656
Gain on sale of property and equipment 11,542 13,577
Loss on sale of non-banking assets (10,570)
Fee for attending Board meetings of associates -
Takaful claim 120 112
Recoveries against previously expensed items 531
Others 9,657 -
438 16,991
29 OPERATING EXPENSES 82,246
564
77,853
29.1 2,758,118 2,710,961
Total compensation expense
Property expense
Rent & taxes 968,582 835,457
Insurance 148,837 64,272
Utilities cost 327,767 313,645
Security (including guards) 325,536 305,408
Repair & maintenance (including janitorial charges) 109,669 95,029
Depreciation 278,082 310,258
Others
588 1,653
Information technology expenses 2,159,061 1,925,722
Software maintenance
Hardware maintenance 95,577 71,569
Depreciation 63,528 51,157
Amortisation 175,263 181,887
Network charges 66,031 58,075
158,873 93,440
Other operating expenses 559,272 456,128
Directors’ fees and allowances 6,900 4,153
Fees and allowances to Shariah Board 12,282 9,537
Legal & professional charges 78,147 36,066
Travelling & conveyance 30,532 30,455
NIFT clearing charges 20,310 17,317
Depreciation 196,507 216,090
Depreciation on non banking assets 6,653 6,634
Entertainment expense 62,570 54,166
Postage & courier charges 46,729 47,584
Communication 45,839 40,550
Stationery & printing 105,353 103,919
Marketing, advertisement & publicity 125,959 89,060
Repairs and maintenance 78,577 81,982
Takaful, tracker and other charges on car Ijarah 158,998 195,075
Fee and subscription 115,497 89,635
Vehicle running and maintenance 101,845 72,167
Auditors Remuneration 29.2 12,933 19,290
Amortization 2,283 5,105
CDC and share registrar services 13,094 16,513
Brokerage and commission 10,807 6,985
Stamp duty & registration charges 15,319
Others 72,412 33
1,319,546 46,410
6,795,997 1,188,726
6,281,537
132
29.1 Total compensation expense Note 2018 2017
Rupees in ‘000
Managerial remuneration 1,221,669
(i) Fixed 1,239,749 2,792
(ii) Variable - Cash bonus / awards 7,984 81,236
Charge for defined benefit plan 37.8.1 88,717 86,632
Contribution to defined contribution Plan 38 87,831
Rent & house maintenance allowance 507,301
Utilities allowance 498,706 114,910
Medical allowance 110,783 151,001
Car maintainance allowance 149,928 164,703
Conveyance allowance 169,795
Fuel allowance 3,629
Sports & welfare 4,221 8,329
Staff life takaful 9,694 1,800
Overtime allowance 1,817 7,597
Training 8,323 1,817
Special allowance 2,127 25,344
Phone banking allowance 18,638 24,991
Relocation allowance 41,285
Sales commission 391
Contract staff cost 557 429
Others 587 140,430
Sub-total 129,047 165,916
Sign-on bonus (Paid to 1 person as per contract) 178,312 44
Grand Total 17 2,710,961
2,748,118
10,000 -
2,758,118 2,710,961
29.2 Auditors’ remuneration
Audit fee 6,439 5,775
Fee for the review of half yearly financial statements 1,733 1,650
Fee for other statutory certifications 2,017 1,921
Special certifications and sundry advisory services
Tax services 531 507
Out-of-pocket expenses 1,400 8,527
30 OTHER CHARGES 813 910
12,933 19,290
Penalties imposed by the State Bank of Pakistan 54,359 21,733
31 PROVISIONS / (REVERSAL OF PROVISIONS) AND
WRITE OFFS - NET
Provision for diminution in value of investments-net 10.6.1 61,383 210,600
Reversal of provision against Islamic financing (35,875) (477,688)
and related assets and advances - net 11.15.2 11,327 (124,882)
Other provisions / reversal of provision - net 36,835 (391,970)
133
32 TAXATION Note 2018 2017
Rupees in ‘000
Current year 168,353 141,459
Prior years 33,591 -
Deferred 32.1 (12,040) (1,547,246)
189,904 (1,405,787)
32.1 The numerical reconciliation between average tax rate and the applicable tax rate has not been
presented in these financial statements as the provision for current year income tax has been
made under section 113 of the Income Tax Ordinance, 2001 (minimum tax on turnover) due to
available tax losses brought forward from prior years and transferred from the defunct KASB
Bank Limited.
Under Section 114 of the Income Tax Ordinance, 2001 (Ordinance), the Bank has filed the return
of income for the tax years 2006 to 2018 on due dates. These returns were deemed completed
32.2 under the provisions of the prevailing income tax laws as applicable in Pakistan during the
relevant accounting years.
During the year 2017, the Bank revised its income tax return for the tax year 2016 and also
reassessed the consequential impact of such revision on the tax provision for the year 2017
33 based on technical advice from its consultant.
As per the above revision, certain elements of the accumulated tax losses are considered as
eligible for adjustments in tax year 2016 and 2017 due to change suggested by the consultant
in the manner in which certain tax adjustments may be claimed in respect of the said years. As
a result of the above, the carry forward tax losses in respect of accumulated tax depreciation
and provision for financings had increased with a deferred tax impact of Rs. 1,754.62 million
in December 2017.
BASIC AND DILUTED EARNINGS PER SHARE
Note 2018 2017
Rupees in ‘000
Profit after taxation for the year 212,664 1,563,149
Weighted average number of ordinary Number of shares
shares in issue 1,007,912,090 1,007,912,090
Rupees
Earnings per share - basic / diluted 33.1 0.2110 1.5509
33.1 There were no convertible / dilutive potential ordinary shares outstanding as at December
31, 2018 and December 31, 2017.
134
34 PROFIT / (LOSS) DISTRIBUTION TO DEPOSITOR’S POOL
The Bank maintained the following pools for profit declaration and distribution during the year
ended December 31, 2018:
(i) General Deposit Mudarabah Pool (PKR, USD, EUR & GBP);
(ii) Musharakah Pool under SBP’s Islamic Export Refinance Scheme;
(iii) Special Mudarabah Deposits Pool; and
(iv) Treasury Pools
The deposits and funds accepted under the General Deposit Mudarabah Pool is provided to different
sectors of economy mainly to ‘Textile andAllied’, ‘ Energy’, ‘Fertilizer’, ‘Trading’ ,’ Consumer Finance’
and ‘GOP Ijarah Sukuks’.
Musharakah investments from the SBP under Islamic Export Refinance Scheme (IERS) are channelled
towards the export sector of the economy via different Islamic financing modes such as Murabahah,
Istisna etc.
Key features and risk & reward characteristics of all pools
The ‘General Deposit Mudarabah Pool’ for both local and foreign currency is to cater all depositors
of the Bank and provide profit/loss based on actual returns earned by the pool. Depositors are Rabb-
ul-Maal as they are the provider of capital while the Bank acts as Mudarib by investing these funds
in business. Since there are more than one Rabb-ul-Maal (depositor), their mutual relationship is
that of Musharakah. Profit is shared among Mudarabah partners (Bank and depositors) as per pre-
agreed profit sharing ratio. Whereas, profit sharing among the depositors is based on pre-assigned
weightages. Loss, if any, is borne by Rabb-ul-Maal as per the principles of Mudarabah.
The IERS Pool caters to the ‘Islamic Export Refinance Scheme’ requirements based on the guidelines
issued by the SBP. In this Scheme, SBP enters into a Musharakah arrangement with the Bank for
onward financing to exporters and other blue chip companies on the basis of Shariah compliant
modes such as Murabahah, Istisna, etc. Under the scheme, SBP is required to share in profit and
loss of the Bank’s IERS Musharakah pool. IERS pool consists of blue chip companies to whom the
Bank has provided financing facilities on Shariah compliant modes including IERS facility. Profit
is shared according to an agreed weightage and loss is shared according to the investment ratio.
The Special Mudarabah Deposits Pools for local currency are created to attract and retain clients
expecting specific returns. The funds received against these deposits are invested in various Shariah
compliant assets.
Treasury Pools are managed on the basis of Musharakah, wherein the Bank and partner (Financial
Institution) share actual return earned by the pool according to pre-defined profit sharing ratio.
The risk characteristic of each pool mainly depends on the asset and liability profile of each pool. The
pool is exposed to following kinds of risks:
1 Asset Risk: The pool is exposed to Asset Risk which is the risk that is associated with Islamic
mode of finance(s) applied/used under the transaction structure(s). The Bank has prepared
detailed product manuals in order to identify and properly mitigate such risk. The Bank also
analyses transaction structure of each customer to further ensure proper safeguard of depositors’
135
interest. The review is done by experienced team of professionals having considerable
experience in the field of Islamic banking and finance. Nevertheless, since Islamic banking is
a nascent industry, we believe that the process of further improvement will continue as the
business grows.
2 Credit Risk: Financial Risk is the risk which is associated with financing that is mitigated
through safeguards through available standards within Shariah guidelines as disclosed in note
45.1 to these financial statements.
Parameters used for allocation of profit, charging expenses and provisions etc. along with a brief
description of their major components:
Gross income (Revenue less cost of goods sold and after deduction of other direct expenses), generated
from relevant assets is calculated at the end of the month. The income is shared between the Bank
and the depositors as per agreed profit sharing ratio after deduction of commingled Bank’s equity
share on pro rata basis. The residual is shared among depositors as per agreed weightages. These
weightages and profit sharing ratios are declared by the Bank in compliance with the requirements
of the SBP and Shariah.
The allocation of income and expenses to different pools is based on pre-defined basis and
accounting principles/standards. Direct expenses are charged to respective pool, while indirect
expenses are borne by the Bank as Mudarib. The direct expenses charged to the pool are direct cost
in financing/investment transactions (i.e. Murabahah, Ijarah, Diminishing Musharakah, Istisna,
Karobar Financing, Salam, etc.) and depreciation of Ijarah assets. The general and specific provisions
created against non-performing Islamic financing and related assets and diminution in the value of
investments as under prudential regulations and other SBP directives have been borne by the Bank
as Mudarib.
2018
General Profit rate and Profit rate Depositor Mudarib Mudarib Profit rate return Percentage of Amount of
Deposit weightage return earned Share % share % share distributed to Mudarib share Mudarib Share
Mudarabah remunerative
Pool announcement deposits transferred transferred
period (Savings and through Hiba through Hiba
Term)
Rupees in ‘000 Rupees in ‘000
PKR Pool Monthly 8.86% 50.00% 50.00% 3,295,314 4.30% 21.69% 669,619
USD Pool Monthly 1.26% 50.00% 50.00% 14,677 0.63% 0.25% 34
GBP Pool Monthly 0.40% 50.00% 50.00% 581 0.23% 7.08% 18
EURO Pool Monthly 0.03% 54.05% 45.95% 22 0.02% 0.00% -
Specific Profit Rate and Profit rate Client Share Bank Share Bank Profit rate return Percentage of Amount of Hiba
Musharakah Weightages return earned % % Share distributed Hiba to Client to IERS Client
Pool announcement
Period
Rupees in ‘000 Rupees in ‘000
Islamic Export Monthly 4.29% 46.80% 53.20% 2,359,406 1.99% 0.00% -
Refinance (IERS)
Musharakah Pool
136
2018
Specific Profit rate and Profit rate Depositor Mudarib Mudarib Profit rate return Percentage of Amount of
Mudarabah weightage return earned Share % share % Fee distributed to Mudarib share Mudarib Share
remunerative transferred transferred through
Pool announcement special deposits through Hiba Hiba to special
period
remunerative
deposits
Rupees in ‘000 Rupees in ‘000
(i) Mutual Fund Monthly 8.73% 70.12% 29.88% 121,550 6.24% 47.41% 53,677
(ii) Special Term Monthly 8.08% 71.24% 28.76% 164,696 5.61% 23.72% 35,906
Deposit
(iii) Special Saving Monthly 9.72% 70.00% 30.00% 39,140 6.82% 51.51% 20,904
(iv) 1 year special
Term Deposit
monthly profit Monthly 10.93% 70.00% 30.00% 6,136 7.73% 50.35% 3,460
(v) In addition to the above, 92 short term Treasury Pools were created to meet liquidity management requirement of Treasury
Department. The Pools were dissolved after maturity of respective Treasury transaction. The Pools were managed under the Shariah
approved guidelines.
35 CASH AND CASH EQUIVALENTS
Note 2018 2017
Rupees in ‘000
Cash and balances with treasury banks 7 14,292,752 11,784,180
Balances with other banks 8 832,621 801,807
15,125,373 12,585,987
36 STAFF STRENGTH Number of employees
Permanent 2,252 2,534
Contractual basis 800 816
Total staff strength 3,052 3,350
37 DEFINED BENEFIT PLAN
37.1 General description
The Bank operates a gratuity fund for its employees (members of the fund). The fund entitles the
members to lump sum payment at the time of retirement, resignation or death. Permanent staff are
eligible for such benefits after three years of service.
37.2 Number of Employees under the scheme
The number of employees covered under the defined scheme are 2,252 (2017: 2,534)
137
37.3 Principal actuarial assumptions
Projected unit credit method, using the following significant assumptions, was used for the valuation
of the defined benefit plan:
2018 2017
- Valuation Discount rate 9.50% 9.50%
- Salary Increase Rate 9.50% 8.50%
- Expected Return on Plan Assets 13.75% 9.50%
Assumptions regarding future mortality are set based on actuarial advice in accordance with
published statistics and experience in Pakistan. The rates assumed are based on the adjusted SLIC
2001 - 2005 mortality tables with one year age set back.
37.4 Reconciliation of (receivable from) / payable to defined benefit plans
Note 2018 2017
The amount recognised in the statement of Rupees in ‘000
financial position (in respect of the gratuity
scheme) is determined as follows:
Present value of defined benefit obligations 380,601 327,613
Fair value of plan assets (302,155) (281,620)
37.5 Movement in defined benefit obligations 78,446 45,993
327,613
Obligations at the beginning of the year 86,723 271,262
Current service cost 29,023 84,578
Return expense (44,217) 24,324
Benefits paid by the Bank (18,541) (30,441)
Re-measurement gain 380,601 (22,110)
Obligations at the end of the year 327,613
37.6 Movement in fair value of plan assets
Fair value at the beginning of the year 281,620 306,437
Return earned on plan assets 27,029 27,666
Contribution by the Bank - net 5,783 (30,441)
Re-measurements: Net return on plan assets (12,277) (22,042)
over return expense 37.8.2 302,155 281,620
Fair value at the end of the year
37.7 Movement in payable under defined benefit schemes
Opening balance 45,993 (35,175)
Charge for the year 88,717 81,236
Contribution by the Bank - net (5,783) 30,441
Re-measurement gain recognised in OCI (6,264)
during the year 37.8.2 (44,217) (68)
Benefits paid by the Bank 78,446 (30,441)
Closing balance 45,993
138
37.8 Charge for defined benefit plans
Cost recognised in profit and loss
37.8.1
2018 2017
Rupees in ‘000
Current service cost 86,723 84,578
Net financial charges 1,994 (3,342)
88,717 81,236
37.8.2 Re-measurements recognised in OCI during the year
Gain on obligation
- Financial assumptions 24,874 (9,129)
- Experience adjustment (43,415) (12,981)
Return on plan assets over profit earned 12,277 22,042
Total re-measurements (6,264) (68)
Deferred tax impact 2,192 24
Total re-measurements recognised in OCI (4,072) (44)
37.9 Components of plan assets
Bank balance 250,563 227,662
Units of Mutual Funds 51,592 53,958
302,155 281,620
37.9.1 The plan assets and defined benefit obligations are based in Pakistan.
37.10 Sensitivity analysis
The sensitivity of the defined benefit obligation to changes in the weighted principal
assumptions is:
2018 2017
Rupees in ‘000
1% increase in discount rate 343,694 366,908
1% decrease in discount rate 424,301 294,215
1 Year increase in Life expectancy / Withdrawal rate 380,589 327,666
1 Year decrease in Life expectancy / Withdrawal rate 380,613 327,558
The above sensitivity analyses are based on a change in an assumption while holding all
other assumptions constant. When calculating the sensitivity of the defined benefit obligation
37.11 to significant actuarial assumptions the same method (present value of the defined benefit
obligation calculated with the projected unit credit method at the end of the reporting period)
37.12 has been applied as when calculating the gratuity liability recognised within the Statement of
Financial Position.
Expected contributions to be paid to the Rupees in ‘000
funds in the next financial year
88,288
Expected charge / (reversal) for the next financial year 90,004
139
37.13 Maturity profile
The weighted average duration of the defined benefit obligation is 11.61 years.
Expected maturity analysis of undiscounted defined benefit obligation for the gratuity scheme is as
follows:
At December 31, 2018 Less than a Between 1-2 Between 2-5 Over 5 years Total
year years years
Rupees in ‘ 000
Gratuity 17,661 21,610 69,444 3,124,610 3,233,325
Funding Policy
37.14
Funding levels are monitored on an annual basis and are based on actuarial recommendations.
Expected Gratuity Expense for the next year works out to Rs. 90.004 million as per the actuarial
valuation report of the Bank as of December 31, 2018.
37.15 Through its defined benefit gratuity plan, the Fund is exposed to a number of risks, the most
significant of which are detailed below:
Investment Risks The risk arises when the actual performance of the investments is lower than
expectation and thus creating a shortfall in the funding objectives.
Longevity Risks The risk arises when the actual lifetime of retirees is longer than expectation.
This risk is measured at the plan level over the entire retiree population.
Salary Increase The most common type of retirement benefit is one where the benefit is linked
Risk with final salary. The risk arises when the actual increases are higher than
expectation and impacts the liability accordingly.
Withdrawal Risk The risk of actual withdrawals varying with the actuarial assumptions can
impose a risk to the benefit obligation. The movement of the liability can go
either way.
38 DEFINED CONTRIBUTION PLAN
The Bank operates a contributory provident fund for all permanent employees. The employer and
employee both contribute 10% of basic salary to the fund every month. Equal monthly contributions
by employer and employees have made during the year amounted to Rs. 87.831 million (2017: Rs.
86.632 million) each.
140
39 COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL
39.1 Compensation of directors and executives
President / Chief Directors
Executive Executives
2018 2017 2018 2017 2018 2017
Rupees in ‘000
Fees - - 6,900 4,153 - -
Managerial remuneration 61,145 29,883 - - 169,670 457,784
Charge for defined benefit plan - - - - 16,266 15,925
Salary in lieu of provident fund - 2,327 - - - -
Contribution to defined contribution plan 636 - - - 13,129 35,587
Rent and house maintenance - 642 - - 67,160 190,757
Utilities - 2,327 - - 14,925 42,391
Medical - 2,327 - - 13,886 42,390
Others 4,136 - - - 35,101 92,101
65,917 37,506 6,900 4,153 330,137 876,935
Number of persons 2* 1 7 7 82 517
* During the year Mr. Hasan A Bilgrami vacated his office as the President and CEO with effect from
September 30, 2018 and Mr. Syed Amir Ali was appointed as the President and CEO of the Bank with
effect from October 01, 2018. Amounts reported include remuneration of both the current and former
President and CEO.
39.1.1 The SBP, vide its BPRD Circular No. 01 January 25, 2017, issued “Guidelines and Disclosures
on Governance and Remuneration Practices”. Certain disclosure related to remuneration of
Directors and management of the Bank were required to be presented in the financial statements
in terms of such guidelines. Accordingly, revised format of the financial statement issued by
the SBP incorporates such disclosure requirements. However, SBP through its circular number
BPRD/R&PD/2018/17232 dated August 08, 2018 deferred the reporting of such disclosures
till December 31, 2019. Therefore, the management has reported the remuneration disclosures
in these financial statements in accordance with previous disclosure requirements of the
SBP.
39.1.2 The Bank’s former President and Chief Executive was also provided with car allowance of Rs.
5.599 million (2017: Rs. 5.449 million) as per the policy of the Bank.
39.1.3 In addition to above, the Executives have also been given car allowance amounting to Rs.
45.273 million (2017: Rs. 124.918 million) during the current year.
39.1.4 The count for Executives has been reduced from 517 in 2017 to 82 in 2018 due to a change in
definition of the Executives. Earlier, any employee having an annual basic salary of Rs. 0.5
million or above was defined as an Executive. This threshold has now been increased to Rs.
1.2 million.
141
39.2 Remuneration paid to Shariah Board Members
Items Chairman 2018 Non- Chairman 2017 Non-
Resident Resident
a. Meeting Fees and Resident Member(s) Resident Member(s)
Allowances Member Member
b. Managerial remuneration Rupees in ‘000
& allowances
- - 1,350 - - 900
8,568 2,364 - 7,056 1,581 -
Total Amount 8,568 2,364 1,350 7,056 1,581 900
40 Total Number of Persons 1 1 1 1 1 1
FAIR VALUE MEASUREMENTS
The fair value of quoted securities other than those classified as held to maturity or investments
in subsidiaries & associates, is based on quoted market price. Quoted securities classified
as held to maturity are carried at cost less impairment losses. The fair value of unquoted
equity securities, other than investments in associates and subsidiaries, is determined on the
basis of the break-up value of these investments as per their latest available audited financial
statements.
The fair value of unquoted debt securities, fixed term loans, other assets, other liabilities,
fixed term deposits and borrowings cannot be calculated with sufficient reliability due to
the absence of a current and active market for these assets and liabilities and reliable data
40.1 regarding market rates for similar instruments.
Fair value of financial assets
The Bank measures fair values using the following fair value hierarchy that reflects the
significance of the inputs used in making the measurements:
Level 1: Fair value measurements using quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: Fair value measurements using inputs other than quoted prices included within
Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: Fair value measurements using input for the asset or liability that are not based on
observable market data (i.e. unobservable inputs).
142
The table below analyses financial assets measured at the end of the reporting period by the level in
the fair value hierarchy into which the fair value measurement is categorized:
2018
On balance sheet
financial instruments Level 1 Level 2 Level 3 Total
Financial assets - measured Rupees in ‘000
at fair value
Investments
Federal Government Securities - 26,513,606 - 26,513,606
Shares 440,067 - - 440,067
Non-Government Debt Securities - 10,045,048 - 10,045,048
Units of open ended mutual funds 65 - - 65
Non-Financial Assets
- measured at fair value
Operating fixed assets
- Land and building - - 4,565,588 4,565,588
Non-banking assets - - 2,317,671 2,317,671
Off-balance sheet financial
instruments - measured at fair value
Forward purchase of foreign exchange - 9,846,491 - 9,846,491
Forward sale of foreign exchange - 6,950,378 - 6,950,378
Shariah compliant future 161 - - 161
purchase of shares
Shariah compliant future
sale of shares 144,789 - - 144,789
On balance sheet 2017
financial instruments Level 1 Level 2 Level 3 Total
Rupees in ‘000
Financial assets - measured at
fair value
Investments - 34,256,300
Federal Government Securities - 34,256,300
Shares 413,361 - - 413,361
Non-Government Debt Securities - 101,038 - 101,038
Units of open ended mutual funds 65 - - 65
Non-Financial Assets - measured at
fair value
Operating fixed assets
- Land and building - - 3,728,602 3,728,602
Non-banking assets - - 1,136,170 1,136,170
Off-balance sheet financial
instruments - measured at fair value
Forward purchase of foreign exchange - 1,583,801 - 1,583,801
Forward sale of foreign exchange - 1,270,703 - 1,270,703
Shariah compliant future - - 30,029
sale of shares 30,029
143
Valuation techniques used in determination of fair values within level 2
Items
Valuation approach and input used
GOP Sukuks The fair value of GOP Ijarah Sukuks are revalued using PKISRV rates. The
PKISRV rates are announced by FMA (Financial Market Association) through
Reuters. The rates announced are simple average of quotes received from 6
different pre-defined / approved dealers / brokers.
WAPDA Sukuks Investment in WAPDA Sukuks are valued on the basis of the rates announced
by the Mutual Funds Association of Pakistan (MUFAP) in accordance with
the methodology prescribed by the Securities and Exchange Commission of
Pakistan.
Forward foreign The valuation has been determined by interpolating the mid rates
exchange announced by State Bank of Pakistan.
contracts
Valuation techniques used in determination of fair values within level 3
Operating fixed Land and buildings are revalued by professionally qualified valuers as per the
assets - Land and accounting policy. The valuers are listed on the panel of the Pakistan Bank’s
building Association. The valuation is based on their assessment of market value of the
properties.
Non-banking Non-banking assets are revalued by professionally qualified valuers as per the
assets accounting policy. The valuers are listed on the panel of the Pakistan Bank’s
Association. The valuation is based on their assessment of market value of the
properties.
40.2 The Bank’s policy is to recognise transfers into and out of the different fair value hierarchy levels at
the date the event or change in circumstances that caused the transfer occurred.
There were no transfers between levels 1 and 2 during the year.
41 SEGMENT INFORMATION
41.1 Segment Details with respect to Business Activities 2018
Trading & Retail Commercial Support Total
Sales Banking Banking Centre
Profit & Loss Rupees in ‘ 000
Net profit / return 2,969,057 (2,882,976) 5,847,579 100,303 6,033,963
Inter segment revenue - net (3,033,441) 9,071,018 (6,037,577) - -
Total other income 360,932 557,002 323,234 22,844 1,264,012
Total income 296,548 6,745,044 133,236 123,147 7,297,975
Segment direct expenses 19,050 4,304,155 314,569 2,220,798 6,858,572
Inter segment expense allocation 109,280 1,492,155 497,355 (2,098,790) -
Total expenses 128,330 5,796,310 811,924 122,008 6,858,572
Provisions 72,711 10,332 (59,248) 13,040 36,835
Profit/ (loss) before tax 95,507 938,402 (619,440) (11,901) 402,568
144
2018
Trading & Retail Commercial Support Total
Sales Banking Banking Centre
Rupees in ‘ 000
Balance Sheet
Assets
Cash & Bank balances 8,309,890 6,815,483 - - 15,125,373
Investments 38,832,093 - - - 38,832,093
Net inter-segment lending - 156,041,540 - - 156,041,540
Due from financial institutions 18,173,504 - - - 18,173,504
Islamic financing and related
assets - performing - 22,423,321 89,165,423 2,511,581 114,100,325
- non-performing - 746,700 3,649,429 74,357 4,470,486
Others 1,727,663 1,873,391 3,166,067 18,274,354 25,041,475
Total Assets 67,043,150 187,900,435 95,980,919 20,860,292 371,784,796
Liabilties
Borrowings 5,331,216 5,730,496 - - 11,061,712
Subordinated debt - - - - -
Deposits & other accounts - 184,681,628 - 11,735 184,693,363
Net inter-segment borrowing 61,630,487 - 94,411,053 - 156,041,540
Others 81,447 699,280 1,569,866 3,122,773 5,473,366
Total liabilities 67,043,150 191,111,404 95,980,919 3,134,508 357,269,981
Equity 14,514,815 14,514,815
Total Equity & liabilities 67,043,150 191,111,404 95,980,919 17,649,323 371,784,796
Contingencies & Commitments 2,704,990 - 10,416,069 10,013,710 23,134,769
2017 (Restated)
Trading & Retail Commercial Support Total
Sales Banking Banking Centre
Profit & Loss Rupees in ‘ 000
Net profit / return 3,007,322 (2,866,946) 4,884,560 79,031 5,103,967
Inter-segment revenue - net (2,904,587) 5,822,341 (2,917,754) - -
Total other income 257,419 351,318 254,670 101,288 964,695
Total Income 360,154 3,306,713 2,221,476 180,319 6,068,662
Segment direct expenses 51,400 2,058,460 1,427,078 2,641,450 6,178,388
Inter segment expense allocation 128,764 1,758,191 586,028 (2,472,983) -
Total expenses 180,164 3,816,651 2,013,106 168,467 6,178,388
Provisions 210,599 38,952 (506,008) (10,631) (267,088)
Profit / (loss) before tax (30,609) (548,890) 714,378 22,483 157,362
Assets - - 12,585,987
Cash & Bank balances 6,336,431 6,249,556
Investments 42,092,166 - - - 42,092,166
Net inter-segment lending - 157,428,908 - - 157,428,908
Due from financial institutions 21,371,787 - - - 21,371,787
Islamic financing and related
assets - performing - 18,331,666 94,214,242 2,222,155 114,768,063
- non-performing - 529,355 3,828,375 29,246 4,386,976
Others 931,598 1,383,147 4,513,315 15,759,359 22,587,419
Total Assets 70,731,982 183,922,632 102,555,932 18,010,760 375,221,306
145
2017 (Restated)
Trading & Retail Commercial Support Total
Sales Banking Banking Centre
Rupees in ‘ 000
Liabilties
Borrowings 12,439,042 3,131,348 - - 15,570,390
Subordinated debt - - - - -
Deposits & other accounts - 178,268,662 - 41,155 178,309,817
Net inter-segment borrowing 58,103,363 - 99,325,545 - 157,428,908
Others 189,577 4,879,294 3,230,387 1,936,464 10,235,722
Total liabilities 70,731,982 186,279,304 102,555,932 1,977,619 361,544,837
Equity - - - - 13,676,469
Total Equity & liabilities 70,731,982 186,279,304 102,555,932 1,977,619 375,221,306
Contingencies & Commitments (338,538) - 15,905,758 6,867,793 22,435,013
42 TRUST ACTIVITIES
Banks commonly act as trustees and in other fiduciary capacities that result in the holding or placing
of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets
are not assets of the bank and, therefore, are not included in its balance sheet. Following is the list of
assets held under trust:
Category Type No. of IPS account Face Value
2018 2017 2018 2017
Rupees in ‘000
Insurance Companies Sukuks 2 2 479,500 278,000
Asset Management Companies Sukuks 38 22 3,407,030 1,206,740
Employee Funds / NGO’s Sukuks 7 4 40,500 28,000
Individuals Sukuks 7 8 154,470 103,295
Others Sukuks 13 25 2,951,500 6,091,965
67 61 7,033,000 7,708,000
43 RELATED PARTY TRANSACTIONS
The Bank has related party transactions with its parent, subsidiaries, associates, joint ventures,
employee benefit plans and its directors and Key Management Personnel.
The Banks enters into transactions with related parties in the ordinary course of business and on
substantially the same terms as for comparable transactions with person of similar standing.
Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made
in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the
executives / officers is determined in accordance with the terms of their appointment.
146
Details of transacitons with related parties during the year, other than those which have been disclosed elsewhere in these financial
statements are as follows:
2018 2017
Directors Key Subsidiaries Associates Other related Directors Key Subsidiaries Associates Other related
management parties management parties
personnel personnel
Rupees in ‘ 000
Investments - - 2,690,723 1,660,111 - - - 2,690,723 1,660,111 -
Opening balance
Investment made during - - - - - - - - - -
the year
Investment redeemed / - - - - - - - - - -
disposed off during the year - - - - - - - - - -
Transfer in / (out) - net - - 2,690,723 1,660,111 - - - 2,690,723 1,660,111 -
Closing balance
- - (2,063,033) (1,032,169) - - - (2,023,033) (1,032,169) -
Provision for diminution in
value of investments 27,464 184,202 162,777 582,084 1,880,378 29,090 195,125 150,000 722,105 836,022
- 258,618 128,348 675,000 3,196,861 - 31,426 440,976 674,190 6,780,093
Islamic financing and (82,809) (34,275) (864,231) (4,180,572) (42,349) (428,199) (814,211) (5,735,737)
related assets (2,184) (1,626)
Opening balance - 4,494 - - (435,000) - - - - -
Addition during the year 364,505 256,850 392,853 461,667 184,202 162,777 582,084 1,880,378
Repaid during the year 25,280 27,464
Transfer in / (out) - net
Closing balance 135 118 782 8,225 15,470 148 51 1,236 6,797 11,882
- - - - - - 830 - - -
Other Assets 2,458 32,016 247,712 25,849 902,081 1,317 26,645 573,309 36,199 770,305
Profit receivable on 34,119 579,006 17,161,595 2,738,230 8,232,318 51,657 215,793 39,446,895 8,143,322 12,843,245
financings (34,528) (563,296) (17,145,460) (2,684,170) (7,850,192) (50,516) (210,422) (39,772,492) (8,153,672) (12,711,469)
Other receivable 1,647 (1,634) - 360 (52,101) - - - - -
3,696 46,092 263,847 80,269 1,232,106 2,458 32,016 247,712 25,849 902,081
Deposits and other accounts
Opening balance - 11 125 - - 3 10 101 54 20
Received during the year
Withdrawn during the year - - - 19,760 91,572 - - - 128,170 722,177
Transfer in / (out) - net
Closing balance
Other Liabilities
Profit / return payable
Contingencies and
Commitments
Other contingencies
147
RELATED PARTY TRANSACTIONS (Contd.)
2018 2017
Directors Key Subsidiaries Associates Other related Directors Key Subsidiaries Associates Other related
management parties management parties
personnel personnel 68,119
-
Income Rupees in ‘ 000 -
Profit / return earned
Dividend income 2,096 12,267 20,489 51,832 78,085 2,262 8,326 30,907 51,455 -
Advisory Fee - - 40,000 - - - - - - -
Proceeds on disposal - - - - - - - -
of operating - 7,910
fixed assets - - - - - 3,225 - 44,905
Gain on sale of operating - - - - -
fixed assets - 17 - - - - - 3,138 - -
Other income 658 96 - - 20 600 176
39 1,848 86,632
Expense 3,079 2,609 12,704 2,921 61,748 33 87 18,577 738 81,236
Profit / return expensed 6,900 213,757 253 239 240
Other administrative - - - 5,129 2,952 9 -
expenses - - - - -
Meeting Fee / - - - - - 4,153 135,717 - -
Remuneration - 623 - - -
Contribution to employees 87,831 - - - -
provident fund
Contribution to employees 88,717 - - -
gratuity fund - - - -
Operating expenses
44 CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS
The State Bank of Pakistan vide its letter no. BPRD (R&P-02)/625-112/2017/4809 dated February
24, 2017 has given relaxation to the Bank for non-deduction of goodwill and deferred tax assets
pertaining to defunct KASB Bank Limited portfolio from CET 1 capital till December 31, 2018 for the
purpose of calculating the Capital Adequacy Ratio (CAR) of the Bank. Accordingly, the amounts of
goodwill and deferred tax assets have not been deducted from CET 1 Capital.
2018 2017
Minimum Capital Requirement (MCR): Rupees in ‘ 000
Paid-up capital (net of losses) 10,000,079 10,000,079
Capital Adequacy Ratio (CAR): 11,995,695 11,674,706
Eligible Common Equity Tier 1 (CET 1) Capital - -
Eligible Additional Tier 1 (ADT 1) Capital
Total Eligible Tier 1 Capital 11,995,695 11,674,706
Eligible Tier 2 Capital 4,151,812 3,717,741
Total Eligible Capital (Tier 1 + Tier 2) 16,147,507 15,392,447
Risk Weighted Assets (RWAs): 94,255,376 94,448,259
Credit Risk 1,373,209 984,462
Market Risk 11,284,350
Operational Risk 106,912,935 9,435,075
Total 104,867,796
Common Equity Tier 1 Capital Adequacy ratio 11.22% 11.13%
Tier 1 Capital Adequacy Ratio 11.22% 11.13%
Total Capital Adequacy Ratio 15.10% 14.68%
148
2018 2017
National minimum capital requirements prescribed by SBP
CET1 minimum ratio 6.00% 6.00%
Tier 1 minimum ratio 7.50% 7.50%
Total capital minimum ratio 10.00% 10.00%
CCB (Consisting of CET 1 only) 1.90% 1.28%
Total Capital plus CCB 11.90% 11.28%
The capital to risk weighted assets ratio is calculated in accordance with the SBP guidelines on capital
adequacy, under Basel III and Pre-Basel III treatment using Standardised Approach for credit and
market risk and Basic Indicator Approach for operational risk.
2018 2017
Leverage Ratio (LR): Rupees in ‘ 000
Eligiblle Tier-1 Capital 11,995,695 11,674,706
Total Exposures 230,798,907 236,195,159
Leverage Ratio 5.20% 4.94%
Liquidity Coverage Ratio (LCR):
Total High Quality Liquid Assets 42,125,500 40,611,752
Total Net Cash Outflow 21,949,912 29,218,971
Liquidity Coverage Ratio 191.92% 138.99%
Net Stable Funding Ratio (NSFR):
Total Available Stable Funding 187,439,582 187,595,928
Total Required Stable Funding 97,963,189 123,518,551
Net Stable Funding Ratio 191.34% 151.88%
44.1 The full disclsoures on the capital adequacy, leverage ratio & liquidity requirements as per SBP
instructions issued from time to time has been placed on the Bank’s website. The link to the full
discloures is available at www.bankislami.com.pk/investor-relations
45 RISK MANAGEMENT
The objective of Risk Management is to effectively manage uncertainties that arise in the normal
course of business activities. The risk management function is one of the most important areas of
the banking business, and covers a wide spectrum of financial business risk class; including Credit,
Market, Liquidity, Operational etc. The Bank follows effective risk governance which commensurate
well with its current size and structure.
The implementation of Basel II (B2) provides for a risk-based capital requirement. Further, the SBP has
decided to implement Basel III framework in a phased manner with effect from December 31, 2013 to
December 31, 2019, to revise and update capital reforms and clarifications and further strengthen the
existing capital adequacy framework prescribed under Basel II. The Bank adheres to the regulatory
requirement in this respect, and conducts its business accordingly.
As a prelude to countering the financial debacle of the recent past, the Basel Committee
(Internationally) is raising the resilience of the banking sector by strengthening the regulatory capital
framework, essentially building on the three pillars of the Basel II structure. The reforms raise both
the quality and quantity of the regulatory capital base and enhance the risk coverage of the capital
framework. The SBP (State Bank of Pakistan) while being cognizant of the various reforms in the
offing, is reviewing the impact of Basel III (B3) guidelines on the capital structure and CAR (Capital
Adequacy Ratio) through quantitative impact studies. Accordingly, the SBP has implemented first
phase of Basel III framework with effect from December 31, 2013.
149
RISK MANAGEMENT FRAMEWORK
A well formulated policy and procedure is critical to an effective Risk Management framework; it
then needs to be reinforced through a strong control culture that promotes sound risk governance.
The Bank’s Risk Management Framework has been developed keeping in mind, that:
- To be effective, control activities should be an integral part of the regular activities of the Bank;
- Every loss or near miss event should provide some Key Learning Outcome (KLO), helping and
promoting a better risk identification and mitigation;
- While the reward may well commensurate the level of risk, it has to be viewed in entirety and
not in isolation; and
- Critical decision making should be based on relevant research, proper analysis and effective
communication within the Bank.
Strategic Level
At the strategic level, the risk related functions are approved by the senior management and the
Board. These include: defining risks, setting parameters, ascertaining the institution’s risk appetite,
formulating strategy and policies for managing risks and establishing adequate systems and controls
to ensure that overall risk remains within acceptable level and the reward compensates for the risk
taken.
Macro Level
It encompasses risk management within a business area or across business lines. Generally the risk
management activities performed by middle management or units devoted to risk reviews fall into
this category. Periodical review of various portfolios; stress test and scenario analysis for portfolio
resilience; application of statistical tools and information in time series for developing strong
inferences are all performed at this level.
Micro Level
Risk management at micro level, is of critical importance. This function if performed with diligence
and understanding, can be of maximum benefit to the organization. Micro level risk management
includes:
- Business line acquisition, strong adherence to the credit and other related criteria
- Middle Office monitoring function for a sound risk assessment of various risks inherent in
treasury operations
- Detailed review of various processes and operating procedures, for operational and other risk
related assessments
Risk appetite of the Bank
The risk appetite of the Bank is an outcome of its corporate goal, economic profitability, available
resources (size and business life cycle) and most significantly; the controls. The Bank believes
in a cautious yet steady approach towards its business objectives and takes a holistic view of its
investment and financing requirement.
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This approach is primarily based on a viable portfolio build-up with a long-term view; key
consideration being the health of various portfolios.
Risk organization
A strong organizational set-up, with clearly defined roles and responsibilities permits a higher level
of articulation of the Banks risk mandate, establishment of a structure that provides for authority,
delegation and accountability, and development of control framework. Risk management cannot
live in a vacuum; in order to be effective, it has to be run at an enterprise level. Risk governance must
involve all relevant parties and should be sanctioned by the bank’s leadership.
The risk management function at the Bank, along with the different committees including ALCO
(Asset Liability Committee) and MCC (Management Credit Committee), RMC (Risk Management
Committee of the Board) manage and adhere to the risk management policies and procedures, with
an explicit aim to mitigate/ manage risk in line with the Bank’s objectives.
Business line accountability
One of the most important features of the risk management process is the business line accountability.
Business has to understand the risk implication of specific transaction on the business / portfolio.
Some specific risks e.g. reputation risk affects the entire banking business and is not limited to one
business line or the other. At BIPL, as in any other reputable organization, responsibility comes
with accountability. Each business segment is responsible for the profit / loss of the business. The
management of risk is as much a line function as it is supports.
Business lines are equally responsible for the risks they are taking. Because line personnel understand
the risks of the business. Lack of an understanding of this by the line management may lead to risk
management in isolation.
45.1 Credit Risk
The Bank manages credit risk by effective credit appraisal mechanism, approving and reviewing
authorities, limit structures, internal credit risk rating system, collateral management and post
disbursement monitoring so as to ensure prudent financing activities and sound financing portfolio
under the umbrella of a comprehensive Credit Policy approved by the Board of Directors. Credit Risk
has certain sub-categories as follows:
(i) Price risk
There is a risk that the asset repossessed due to default of the customer may be sold or leased out
to another party at a price lower than the original contract price.
(ii) Counter party risk
The risk that the counter-party defaults during the term of a transaction (Murabahah, Ijarah
etc.).
(iii) Settlement risk
The risk that the counter-party does not meet its commitments at the maturity of the transaction
after the Bank has already met its commitments.
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6 BankIslami-Annual-Report-2018
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